SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 21549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED)
For fiscal year ended December 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For transition period from to
Commission File Number 0-21878
MNB BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 48-1120026
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
800 Poyntz Avenue, Manhattan, Kansas 66505
(Address of principal executive offices) (Zip Code)
(785) 565-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this 10-K or
any amendment to this form 10-K. [X]
The aggregate market value of voting common stock of Registrant held by
non-affiliates as of March 15, 2001 was $7,623,944.* At March 15, 2001, the
total number of shares of common stock outstanding was 1,563,905.
Documents incorporated by Reference:
Portions of the 2000 Annual Report to Stockholders for the fiscal year
ended December 31, 2000, are incorporated by reference into Parts I and II
hereof, to the extent indicated herein. Portions of the Proxy Statement for the
Annual Meeting of Stockholders to be held May 23, 2001, are incorporated by
reference in Part III hereof, to the extent indicated herein.
* Based on the last reported price of actual transactions in Registrant's common
stock on March 15, 2001, and reports of beneficial ownership prepared by all
directors, executive officers and beneficial owners of more than 5% of the
outstanding shares of common stock of Registrant; however, such determination of
shares owned by affiliates does not constitute an admission of affiliate status
or beneficial interest in shares of common stock of Registrant.
MNB BANCSHARES, INC.
2000 Form 10-K Annual Report
Table of Contents
PART I
ITEM 1. BUSINESS...................................... 1
ITEM 2. PROPERTIES.................................... 20
ITEM 3. LEGAL PROCEEDINGS............................. 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS....................................... 20
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS................... 20
ITEM 6. SELECTED FINANCIAL DATA....................... 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........... 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.... 21
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........... 21
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 21
ITEM 11. EXECUTIVE COMPENSATION........................ 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................ 22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 23
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K........................... 23
SIGNATURES .............................................. 25
PART I.
ITEM 1.....BUSINESS
REGISTRANT AND ITS SUBSIDIARIES
MNB Bancshares, Inc. (the "Company") is a bank holding company
incorporated under the laws of the State of Delaware. Currently, the Company's
business consists solely of the ownership of Security National Bank, Manhattan,
Kansas (the "Bank"). The Bank is a wholly-owned subsidiary of the Company and is
the successor-in-interest to Manhattan National Bank, formerly Manhattan Federal
Savings and Loan Association (the "Association"), which, on January 5, 1993,
converted concurrently from a federal mutual savings association to a federal
stock savings association (the "Stock Conversion") and from a federal stock
savings association to a national bank (the "Bank Conversion") (collectively,
the "Conversion"). The term "Bank", as used in this Form 10-K, sometimes refers
to the Association during the period prior to the Conversion.
The Company was organized on August 27, 1992, at the direction of the
Board of Directors of the Association to acquire all of the stock issued by the
Association upon consummation of the Stock Conversion. On January 5, 1993, in
connection with the Stock Conversion, the Company issued and sold 925,750 shares
of its common stock, par value $0.01 per share, in a Subscription and Community
Offering to the Company's employee stock ownership plan, the Association's
members and the general public. Total net proceeds of the Subscription and
Community Offering, after Conversion expenses of approximately $600,000, were
approximately $4 million. The Company utilized $2 million of the net proceeds to
acquire all of the common stock, par value
$1.00 per share, issued by the Association in connection with the Stock
Conversion. The remaining net proceeds were then invested by the Company in
interest bearing deposit accounts at the Bank and in other investment
securities.
On April 1, 1995, the Company acquired all of the issued and outstanding
stock of Auburn Security Bancshares, Inc. ("Auburn"), which had consolidated
assets of approximately $20 million. Auburn was a one-bank holding company which
owned 99% of the outstanding stock of Security State Bank, Auburn, Kansas.
Subsequent to the acquisition, the Company acquired all of the remaining stock
of Security State Bank. On December 31, 1995, the Company merged and
consolidated Manhattan National Bank and Security State Bank into Security
National Bank. In May, 1997, a de novo branch was opened in Topeka, Kansas. On
December 31, 1997, the Company acquired Freedom Bancshares, Inc., Osage City,
Kansas ("Freedom"), the holding company for Citizens State Bank, Osage City,
Kansas ("Citizens"), with a branch in Beloit, Kansas. Consolidated assets
acquired in this transaction were approximately $43 million. On June 5, 1998,
the Company sold the Beloit, Kansas branch. On January 6, 2000, the Company
opened an in-store supermarket branch in Manhattan, Kansas. On July 21, 2000,
the Company completed the purchase of the Wamego and Osage City, Kansas branches
of Commercial Federal Bank, which had total deposits of approximately $14
million and total loans approximating $1 million.
As a bank holding company, the Company is subject to regulation by the
Board of Governors of the Federal Reserve System (the "Federal Reserve"). The
Company is also subject to various reporting requirements of the Securities and
Exchange Commission (the "SEC").
Pursuant to the Conversion, the Bank succeeded to all of the assets and
liabilities of the Association. The Association was organized as a
Kansas-chartered mutual building and loan association in 1885, and converted to
a federally chartered mutual savings and loan association in 1938. The Bank is
principally engaged in the business of attracting deposits from the general
public and using such deposits, together with borrowings and other funds, to
originate consumer, commercial, multi-family, and one-to-four family residential
mortgage loans in the Bank's principal lending areas, consisting primarily of
Auburn, Manhattan, Topeka, Osage City and Wamego, Kansas and the surrounding
communities in Riley, Pottawatomie, Shawnee and Osage Counties in Kansas. Since
Conversion, the Bank has focused on originating greater numbers and amounts of
consumer, commercial, and agricultural loans. Additionally, greater emphasis has
been placed on diversification of the deposit mix through expansion of core
deposit accounts such as checking, savings, and money market accounts. The Bank
has also diversified its geographical markets with the acquisitions of Auburn,
Osage City and Wamego and the establishment of the branch facility in Topeka.
The Company continues to explore opportunities to expand its banking markets
through mergers and acquisitions, as well as branching opportunities.
The results of operations of the Bank are dependent primarily upon net
interest income and, to a lesser extent, upon other income derived from loan
servicing fees and customer deposit services. Additional expenses of the Bank
include general and administrative expenses such as salaries, employee benefits,
federal deposit insurance premiums, data processing, occupancy and related
expenses.
Certain deposits of the Manhattan, Wamego and Osage City branches of the
Bank are insured by the Savings Association Insurance Fund (the "SAIF") of the
Federal Deposit Insurance Corporation (the "FDIC") up to the maximum amount
allowable under applicable federal laws and regulations. Deposits of the
remaining branches of the Bank are insured by the Bank Insurance Fund (the
"BIF"). The Bank is regulated by the Office of the Comptroller of the Currency
(the "OCC"), as the chartering authority for national banks, and the FDIC, as
the administrator of the SAIF and the BIF. The Bank is also subject to
regulation by the Federal Reserve with respect to reserves required to be
maintained against deposits and certain other matters. The Bank is a member of
the Federal Reserve Bank of Kansas City and the Federal Home Loan Bank (the
"FHLB") of Topeka.
The Company's executive office is located at 800 Poyntz Avenue, Manhattan,
Kansas 66502. Its telephone number is (785) 565-2000.
Market Area
The Bank's home office is located at 800 Poyntz Avenue, Manhattan, Kansas,
with branches located at 1741 N. Washington, Auburn, Kansas; 1000 Westloop,
Manhattan, Kansas; 102 S 6th, Osage City, Kansas; 6100 SW 21st Street, Topeka,
Kansas, and 530 Lincoln, Wamego, Kansas. Manhattan is located in east central
Kansas, approximately 45 miles west of Topeka. Manhattan is the county seat and
largest city in Riley County. Over the past decade, Riley County has experienced
household growth at an annual rate is slightly higher than the growth rates for
Kansas in general. Auburn is located ten miles southwest of Topeka and in an
area experiencing the growth and expansion of the metropolitan Topeka area.
Topeka is the state capital. Osage City is approximately 30 miles south of
Topeka and has a population of 2,700. Wamego is approximately 10 miles east of
Manhattan with a population of 3,600.
The Bank's primary deposit gathering and lending market consists of Riley,
Osage, Pottawatomie, and Shawnee Counties, Kansas. Riley County's economy is
significantly influenced by employment at Fort Riley Military Base and Kansas
State University, the second largest university in Kansas, which is located in
Manhattan. Shawnee County's economy is strongly influenced by the City of Topeka
and several major private firms and public institutions. Osage County is
primarily agricultural with small private industries and business firms.
Other sources of employment in the Manhattan market area are derived from
a variety of service, trade and manufacturing employers located in southern
Riley County and western Pottawatomie County, including the Unified School
District, the Kansas Farm Bureau and the McCall Pattern Company. Northern Riley
County and eastern Pottawatomie County are primarily rural, agricultural areas.
Other sources of employment in the Auburn, Osage City, and Topeka market areas
are numerous manufacturing, distribution, and retail centers located in Shawnee
County. These include Goodyear Tire & Rubber; Blue Cross/Blue Shield; Volume
Shoe Corporation; and Washburn University. Others in the Topeka area include
Frito-Lay, Inc.; Southwestern Bell Corporation; the Veteran's Administration;
and Hill's Pet Food. Major employers in Osage City are Kan-Build, Inc., a firm
which specializes in manufactured housing, and Mussatto Brothers, Inc., a
wholesale beverage distributor.
Competition
The Bank faces strong competition both in attracting deposits and making
real estate and other loans. Its most direct competition for deposits comes from
commercial banks and other savings institutions located in its principal market
areas of Riley, Osage, Pottawatomie and Shawnee Counties, including many large
financial institutions which have greater financial and marketing resources
available to them. The ability of the Bank to attract and retain deposits
generally depends on its ability to provide a rate of return, liquidity and risk
comparable to that offered by competing investment opportunities. The Bank
competes for loans principally through the interest rates and loan fees it
charges and the efficiency and quality of services it provides borrowers.
Additionally, competition may increase as a result of the continuing reduction
on restrictions on the interstate operations of financial institutions. Under
the Gramm-Leach-Bliley Act of 1999, effective March 11, 2000, securities firms
and insurance companies that elect to become financial holding companies may
acquire banks and other financial institutions. The Gramm-Leach-Bliley Act may
significantly change the competitive environment in which the Company and the
Bank conduct business. The financial services industry is also likely to become
more competitive as further technological advances enable more companies to
provide financial services. These technological advances may diminish the
importance of depository institutions and other financial intermediaries in the
transfer of funds between parties.
Employees
At December 31, 2000, the Bank had a total of 66 employees (62 full time
equivalent employees). The Company has no direct employees. Employees are
provided with a comprehensive benefits program, including basic and major
medical insurance, life and disability insurance, sick leave, an employee stock
ownership plan and a 401(k) profit sharing plan. Employees are not represented
by any union or collective bargaining group and the Bank considers its employee
relations to be good.
SUPERVISION AND REGULATION
General
Financial institutions and their holding companies are extensively
regulated under federal and state law. As a result, the growth and earnings
performance of the Company can be affected not only by management decisions and
general economic conditions, but also by the requirements of applicable state
and federal statutes and regulations and the policies of various governmental
regulatory authorities, including the Office of the Comptroller of the Currency
(the "OCC"), the Board of Governors of the Federal Reserve System (the "Federal
Reserve"), the Federal Deposit Insurance Corporation (the "FDIC"), the Internal
Revenue Service and state taxing authorities and the Securities and Exchange
Commission (the "SEC"). The effect of applicable statutes, regulations and
regulatory policies can be significant, and cannot be predicted with a high
degree of certainty.
Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and its subsidiaries, regulate, among other
things, the scope of business, investments, reserves against deposits, capital
levels relative to operations, the nature and amount of collateral
for loans, the establishment of branches, mergers, consolidations and
dividends. The system of supervision and regulation applicable to the Company
and its subsidiaries establishes a comprehensive framework for their
respective operations and is intended primarily for the protection of the
FDIC's deposit insurance funds and the depositors, rather than the
shareholders, of financial institutions.
The following is a summary of the material elements of the regulatory
framework that applies to the Company and its subsidiaries. It does not describe
all of the statutes, regulations and regulatory policies that apply to the
Company and its subsidiaries, nor does it restate all of the requirements of the
statutes, regulations and regulatory policies that are described. As such, the
following is qualified in its entirety by reference to the applicable statutes,
regulations and regulatory policies. Any change in applicable law, regulations
or regulatory policies may have a material effect on the business of the Company
and its subsidiaries.
The Company
General. The Company, as the sole shareholder of the Bank, is a bank
holding company. As a bank holding company, the Company is registered with, and
is subject to regulation by, the Federal Reserve under the Bank Holding Company
Act, as amended (the "BHCA"). In accordance with Federal Reserve policy, the
Company is expected to act as a source of financial strength to the Bank and to
commit resources to support the Bank in circumstances where the Company might
not otherwise do so. Under the BHCA, the Company is subject to periodic
examination by the Federal Reserve. The Company is also required to file with
the Federal Reserve periodic reports of the Company's operations and such
additional information regarding the Company and its subsidiaries as the Federal
Reserve may require.
Investments and Activities. Under the BHCA, a bank holding company must
obtain Federal Reserve approval before: (i) acquiring, directly or indirectly,
ownership or control of any voting shares of another bank or bank holding
company if, after the acquisition, it would own or control more than 5% of the
shares of the other bank or bank holding company (unless it already owns or
controls the majority of such shares); (ii) acquiring all or substantially all
of the assets of another bank; or (iii) merging or consolidating with another
bank holding company. Subject to certain conditions (including certain deposit
concentration limits established by the BHCA), the Federal Reserve may allow a
bank holding company to acquire banks located in any state of the United States
without regard to whether the acquisition is prohibited by the law of the state
in which the target bank is located. In approving interstate acquisitions,
however, the Federal Reserve is required to give effect to applicable state law
limitations on the aggregate amount of deposits that may be held by the
acquiring bank holding company and its insured depository institution affiliates
in the state in which the target bank is located (provided that those limits do
not discriminate against out-of-state depository institutions or their holding
companies) and state laws which require that the target bank have been in
existence for a minimum period of time (not to exceed five years) before being
acquired by an out-of-state bank holding company.
The BHCA also generally prohibits the Company from acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any
company which is not a bank and from engaging in any business other than that of
banking, managing and controlling banks or furnishing services to banks and
their subsidiaries. This general prohibition is subject to a number of
exceptions. The principal exception allows bank holding companies that have not
received approval to operate as financial holding companies to engage in, and to
own shares of companies engaged in, certain businesses found by the Federal
Reserve to be "so closely related to banking ... as to be a proper incident
thereto." Under current regulations of the Federal Reserve, this authority would
permit the Company to engage in a variety of banking-related businesses,
including the operation of a thrift, sales and consumer finance, equipment
leasing, the operation of a computer service bureau (including software
development), and mortgage banking and brokerage. Eligible bank holding
companies that elect to operate as financial holding companies may engage in, or
own shares in companies engaged in, a wider range of nonbanking activities,
including securities and insurance activities and any other activity that the
Federal Reserve, in consultation with the Secretary of the Treasury, determines
by regulation or order is financial in nature, incidental to any such financial
activity or complementary to any such financial activity and does not pose a
substantial risk to the safety or soundness of depository institutions or the
financial system generally. The BHCA generally does not place territorial
restrictions on the domestic activities of non-bank subsidiaries of bank or
financial holding companies. As of the date of this filing, the Company has not
applied for nor received approval to operate as a financial holding company.
Federal law also prohibits any person or company from acquiring "control"
of a bank or bank holding company without prior notice to the appropriate
federal bank regulator. "Control" is defined in certain cases as the acquisition
of 10% or more of the outstanding shares of a bank or bank holding company.
Capital Requirements. Bank holding companies are required to maintain
minimum levels of capital in accordance with Federal Reserve capital adequacy
guidelines. If capital falls below minimum guideline levels, a bank holding
company, among other things, may be denied approval to acquire or establish
additional banks or non-bank businesses.
The Federal Reserve's capital guidelines establish the following minimum
regulatory capital requirements for bank holding companies: (i) a risk-based
requirement expressed as a percentage of total risk-weighted assets; and (ii) a
leverage requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total risk-weighted
assets of 8%, at least one-half of which must be Tier 1 capital. The leverage
requirement consists of a minimum ratio of Tier 1 capital to total assets of 3%
for the most highly rated companies, with a minimum requirement of 4% for all
others. For purposes of these capital standards, Tier 1 capital consists
primarily of permanent stockholders' equity less intangible assets (other than
certain mortgage servicing rights and purchased credit card relationships).
Total capital consists primarily of Tier 1 capital plus certain other debt and
equity instruments which do not qualify as Tier 1 capital and a portion of the
company's allowance for loan and lease losses.
The risk-based and leverage standards described above are minimum
requirements. Higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking
organizations. For example, the Federal Reserve's capital guidelines
contemplate that additional capital may be required to take adequate account
of, among other things, interest rate risk, or the risks posed by
concentrations of credit, nontraditional activities or securities trading
activities. Further, any banking organization experiencing or anticipating
significant growth would be expected to maintain capital ratios, including
tangible capital positions (i.e., Tier 1 capital less all intangible assets),
well above the minimum levels.
As of December 31, 2000, the Company had regulatory capital in excess of
the Federal Reserve's minimum requirements, with a risk-based capital ratio of
13.2% and a leverage ratio of 7.9%.
Dividends. The Delaware General Corporation Law (the "DGCL") allows the
Company to pay dividends only out of its surplus (as defined and computed in
accordance with the provisions of the DGCL) or if the Company has no such
surplus, out of its net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Additionally, the Federal Reserve has
issued a policy statement with regard to the payment of cash dividends by bank
holding companies. The policy statement provides that a bank holding company
should not pay cash dividends which exceed its net income or which can only be
funded in ways that weaken the bank holding company's financial health, such as
by borrowing. The Federal Reserve also possesses enforcement powers over bank
holding companies and their non-bank subsidiaries to prevent or remedy actions
that represent unsafe or unsound practices or violations of applicable statutes
and regulations. Among these powers is the ability to proscribe the payment of
dividends by banks and bank holding companies.
Federal Securities Regulation. The Company's common stock is registered
with the SEC under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the Company
is subject to the information, proxy solicitation, insider trading and other
restrictions and requirements of the SEC under the Exchange Act.
The Bank
General. The Bank is a national bank, chartered by the OCC under the
National Bank Act. The Bank is a member of the FDIC's Bank Insurance Fund
("BIF") (but a portion of its deposits are deemed to be insured by the FDIC's
Savings Association Insurance Fund ("SAIF")). The Bank is also a member of the
Federal Reserve System. As a federally-insured national bank, the Bank is
subject to the examination, supervision, reporting and enforcement requirements
of the OCC, as the chartering authority for national banks, and the FDIC, as
administrator of the BIF and the SAIF. The Bank is also a member of the Federal
Home Loan Bank System, which provides a central credit facility primarily for
member institutions.
Deposit Insurance. As an FDIC-insured institution, the Bank is required to
pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a
risk-based assessment system under which all insured depository institutions are
placed into one of nine categories and assessed insurance premiums based upon
their respective levels of capital and results of supervisory evaluations.
Institutions classified as well-capitalized (as defined by the FDIC) and
considered healthy pay the lowest premium while institutions that are less than
adequately capitalized (as defined by the FDIC) and considered of substantial
supervisory concern pay the highest
premium. Risk classification of all insured institutions is made by the FDIC
for each semi-annual assessment period.
During the year ended December 31, 2000, BIF and SAIF assessments ranged
from 0% of deposits to 0.27% of deposits. For the semi-annual assessment period
beginning January 1, 2001, BIF and SAIF assessment rates will continue to range
from 0% of deposits to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution: (i)
has engaged or is engaging in unsafe or unsound practices; (ii) is in an unsafe
or unsound condition to continue operations; or (iii) has violated any
applicable law, regulation, order or any condition imposed in writing by, or
written agreement with, the FDIC. The FDIC may also suspend deposit insurance
temporarily during the hearing process for a permanent termination of insurance
if the institution has no tangible capital. Management of the Bank is not aware
of any activity or condition that could result in termination of the deposit
insurance of the Bank.
FICO Assessments. Since 1987, a portion of the deposit insurance
assessments paid by SAIF members has been used to cover interest payments due on
the outstanding obligations of the Financing Corporation ("FICO"). FICO was
created in 1987 to finance the recapitalization of the Federal Savings and Loan
Insurance Corporation, the SAIF's predecessor insurance fund. As a result of
federal legislation enacted in 1996, beginning as of January 1, 1997, both BIF
members and SAIF members became subject to assessments to cover the interest
payments on outstanding FICO obligations. These FICO assessments are in addition
to amounts assessed by the FDIC for deposit insurance. Between January 1, 2000,
and the final maturity of the outstanding FICO obligations in 2019, BIF members
and SAIF members will share the cost of the interest on the FICO bonds on a pro
rata basis. During the year ended December 31, 2000, the FICO assessment rate
for BIF and SAIF members was approximately 0.02% of deposits.
Supervisory Assessments. All national banks are required to pay
supervisory assessments to the OCC to fund the operations of the OCC. The amount
of the assessment is calculated using a formula which takes into account the
bank's size and its supervisory condition (as determined by the composite rating
assigned to the bank as a result of its most recent OCC examination). During the
year ended December 31, 2000, the Bank paid supervisory assessments to the OCC
totaling $48,000.
Capital Requirements. The OCC has established the following minimum
capital standards for national banks, such as the Bank: (i) a leverage
requirement consisting of a minimum ratio of Tier 1 capital to total assets of
3% for the most highly-rated banks with a minimum requirement of at least 4% for
all others; and (ii) a risk-based capital requirement consisting of a minimum
ratio of total capital to total risk-weighted assets of 8%, at least one-half of
which must be Tier 1 capital. For purposes of these capital standards, Tier 1
capital and total capital consist of substantially the same components as Tier 1
capital and total capital under the Federal Reserve's capital guidelines for
bank holding companies (see "--The Company--Capital Requirements").
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular
circumstances or risk profiles of individual institutions. For example, the
regulations of the OCC provide that additional capital may be required to
take adequate account of, among other things, interest rate risk or the risks
posed by concentrations of credit, nontraditional activities or securities
trading activities.
During the year ended December 31, 2000, the Bank was not required by the
OCC to increase its capital to an amount in excess of the minimum regulatory
requirement. As of December 31, 2000, the Bank exceeded its minimum regulatory
capital requirements with a leverage ratio of 8.5% and a risk-based capital
ratio of 14.1%.
Federal law provides the federal banking regulators with broad power to
take prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized," in each case as defined by regulation. Depending upon the
capital category to which an institution is assigned, the regulators' corrective
powers include: (i) requiring the institution to submit a capital restoration
plan; (ii) limiting the institution's asset growth and restricting its
activities; (iii) requiring the institution to issue additional capital stock
(including additional voting stock) or to be acquired; (iv) restricting
transactions between the institution and its affiliates; (v) restricting the
interest rate the institution may pay on deposits; (vi) ordering a new election
of directors of the institution; (vii) requiring that senior executive officers
or directors be dismissed; (viii) prohibiting the institution from accepting
deposits from correspondent banks; (ix) requiring the institution to divest
certain subsidiaries; (x) prohibiting the payment of principal or interest on
subordinated debt; and (xi) ultimately, appointing a receiver for the
institution. As of December 31, 2000, the Bank was well capitalized, as defined
by OCC regulations.
Dividends. The National Bank Act imposes limitations on the amount of
dividends that may be paid by a national bank, such as the Bank. Generally, a
national bank may pay dividends out of its undivided profits, in such amounts
and at such times as the bank's board of directors deems prudent. Without prior
OCC approval, however, a national bank may not pay dividends in any calendar
year which, in the aggregate, exceed the bank's year-to-date net income plus the
bank's retained net income for the two preceding years.
The payment of dividends by any financial institution or its holding
company is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations, and a financial
institution generally is prohibited from paying any dividends if, following
payment thereof, the institution would be undercapitalized. As described above,
the Bank exceeded its minimum capital requirements under applicable guidelines
as of December 31, 2000. Further, the Bank may not pay dividends in an amount
which would reduce its capital below the amount required for the liquidation
account established in connection with the Bank's conversion from the mutual to
the stock form of ownership in 1993. As of December 31, 2000, approximately
$311,000 was available to be paid as dividends to the Company by the Bank.
Notwithstanding the availability of funds for dividends, however, the OCC may
prohibit the payment of any dividends by the Bank if the OCC determines such
payment would constitute an unsafe or unsound practice.
Insider Transactions. The Bank is subject to certain restrictions imposed
by federal law on extensions of credit to the Company and its subsidiaries, on
investments in the stock or other securities of the Company and its subsidiaries
and the acceptance of the stock or other securities of the Company or its
subsidiaries as collateral for loans. Certain limitations and reporting
requirements are also placed on extensions of credit by the Bank to its
directors and officers, to directors and officers of the Company and its
subsidiaries, to principal stockholders of the Company, and to "related
interests" of such directors, officers and principal stockholders. In addition,
federal law and regulations may affect the terms upon which any person becoming
a director or officer of the Company or one of its subsidiaries or a principal
stockholder of the Company may obtain credit from banks with which the Bank
maintains a correspondent relationship.
Safety and Soundness Standards. The federal banking agencies have adopted
guidelines which establish operational and managerial standards to promote the
safety and soundness of federally insured depository institutions. The
guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, compensation, fees and benefits, asset quality and
earnings.
In general, the safety and soundness guidelines prescribe the goals to be
achieved in each area, and each institution is responsible for establishing its
own procedures to achieve those goals. If an institution fails to comply with
any of the standards set forth in the guidelines, the institution's primary
federal regulator may require the institution to submit a plan for achieving and
maintaining compliance. If an institution fails to submit an acceptable
compliance plan, or fails in any material respect to implement a compliance plan
that has been accepted by its primary federal regulator, the regulator is
required to issue an order directing the institution to cure the deficiency.
Until the deficiency cited in the regulator's order is cured, the regulator may
restrict the institution's rate of growth, require the institution to increase
its capital, restrict the rates the institution pays on deposits or require the
institution to take any action the regulator deems appropriate under the
circumstances. Noncompliance with the standards established by the safety and
soundness guidelines may also constitute grounds for other enforcement action by
the federal banking regulators, including cease and desist orders and civil
money penalty assessments.
Branching Authority. National banks headquartered in Kansas, such as the
Bank, have the same branching rights in Kansas as banks chartered under Kansas
law. Kansas law grants Kansas-chartered banks the authority to establish
branches anywhere in the State of Kansas, subject to receipt of all required
regulatory approvals.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Riegle-Neal Act"), both state and national banks are allowed to
establish interstate branch networks through acquisitions of other banks,
subject to certain conditions, including certain limitations on the aggregate
amount of deposits that may be held by the surviving bank and all of its insured
depository institution affiliates. The establishment of new interstate branches
or the acquisition of individual branches of a bank in another state (rather
than the acquisition of an out-of-state bank in its entirety) is allowed by the
Riegle-Neal Act only if specifically authorized
by state law. The legislation allowed individual states to "opt-out" of
certain provisions of the Riegle-Neal Act by enacting appropriate legislation
prior to June 1, 1997. Kansas banks have the authority to engage in
interstate mergers to the extent permitted by the Riegle-Neal Act.
Financial Subsidiaries. Eligible national banks are authorized to engage,
through "financial subsidiaries," in certain activities that are permissible for
financial holding companies (as described above) and certain activities that the
Secretary of the Treasury, in consultation with the Federal Reserve, determines
is financial in nature or incidental to any such financial activity. As of the
date of this filing, the Bank has not applied for nor received approval to
establish any financial subsidiaries.
Federal Reserve System. Federal Reserve regulations, as presently in
effect, require depository institutions to maintain non-interest earning
reserves against their transaction accounts (primarily NOW and regular checking
accounts), as follows: for transaction accounts aggregating $42.8 million or
less, the reserve requirement is 3% of total transaction accounts; and for
transaction accounts aggregating in excess of $42.8 million, the reserve
requirement is $1.284 million plus 10% of the aggregate amount of total
transaction accounts in excess of $42.8 million. The first $5.5 million of
otherwise reservable balances are exempted from the reserve requirements. These
reserve requirements are subject to annual adjustment by the Federal Reserve.
The Bank is in compliance with the foregoing requirements.
I. Distribution of Assets, Liabilities, and Stockholders' Equity; Interest
Rates and Interest Differentials
The average balance sheets are incorporated by reference from the
Company's 2000 Annual Report to Stockholders (attached as Exhibit 13.1). The
following table describes the extent to which changes in interest income and
interest expense for major components of interest-earning assets and
interest-bearing liabilities affected the Bank's interest income and expense
during the periods indicated. The table distinguishes between (i) changes
attributable to rate (changes in rate multiplied by prior volume), (ii) changes
attributable to volume (changes in volume multiplied by prior rate), and (iii)
net change (the sum of the previous columns). The net changes attributable to
the combined effect of volume and rate, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
December 2000 vs 1999 December 1999 vs 1998
Increase/(Decrease) Increase/(Decrease)
Attributable to Attributable to
--------------------- ---------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
(Dollars in thousands) (Dollars in thousands)
Interest income:
Investment securities $(492) $ 474 $ (18) $(113) $(144) $(257)
Loans 1,044 307 1,351 (70) (411) (481)
----- ----- ----- ----- ----- -----
Total 552 781 1,333 (183) (555) (738)
----- ----- ----- ----- ----- -----
Interest expense:
Deposits $ 374 $ 604 $ 978 $ (296) $(454) $(750)
Other borrowings 11 58 69 198 (53) 145
----- ----- ----- ----- ----- -----
Total 385 662 1,047 (98) (507) (605)
----- ----- ----- ----- ----- -----
Net interest income $ 167 $ 119 $ 286 $ (85) $ (48) $(133)
===== ===== ===== ===== ===== =====
II. Investment Portfolio
Investments
Investment Securities. The following table sets forth the carrying value of
the investment securities portfolio at the dates indicated.
At December 31,
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Investment securities:
U.S. government and agency obligations $16,568 $18,622 $18,062
Mortgage-backed securities 15,500 16,088 21,121
Municipal bonds 13,537 8,861 8,690
Bankers' acceptances - - 1,140
FHLB, Federal Reserve, and Bankers Bank of
Kansas stock and certificates of deposit 2,044 1,434 1,638
------- ------- -------
Total $47,649 $45,005 $50,651
======= ======= =======
As of December 31, 2000, the carrying value, maturities and the weighted average
yields of investment securities were as follows:
After One After Five
Year Years
One Year or Through Through Ten Total
Less Five Years Years
------------- ------------- ------------- ------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
U.S. government and
agency securities $ 2,553 6.24% $ 13,225 6.76% $ 790 7.01% $ 16,568 6.66%
Mortgage-backed
securities 4,586 6.31% 8,319 6.54% 2,595 6.75% 15,500 6.50%
Municipal bonds 2,979 4.51% 6,120 5.42% 4,438 4.80% 13,537 4.71%
FHLB, Federal Reserve,
and Bankers Bank of
Kansas stock and
certificates of
deposit 585 6.65% - - 1,459 7.25% 2,044 7.25%
-------- -------- ------- --------
Total $ 10,703 5.83% $ 27,664 6.43% $ 9,282 5.89% $ 47,649 6.16%
======== ======== ======= ========
With the exception of U.S. government and federal agency obligations, there were
no investment securities of any single issuer the book value of which exceeded
10% of consolidated stockholders' equity at December 31, 2000.
III. Loan Portfolio
Loan Portfolio Composition. The following table sets forth the composition
of the loan portfolio by type of loan at the dates indicated.
At December 31,
2000 1999 1998
----------------- ---------------- ----------------
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
(Dollars in thousands)
Real estate loans:
Residential
one-to-four family (1) $28,920 30.7% $27,877 31.8% $25,814 34.4%
Construction 5,420 5.8 3,807 4.3 3,569 4.7
Multi-family 5,984 6.4 8,185 9.3 4,355 5.8
Commercial real estate 20,647 22.0 19,643 22.4 17,549 23.4
------ ---- ------ ---- ------ ----
Total real estate loans 60,971 64.8 59,512 67.8 51,287 68.3
Consumer loans 8,686 9.2 7,169 8.2 5,818 7.8
Commercial non-real estate 24,326 25.9 20,483 23.4 17,131 22.8
Student loans 1,501 1.6 1,877 2.1 2,388 3.2
Less:
Unearned fees, discounts
and premiums 78 0.1 67 0.1 88 0.1
Undisbursed loan funds 72 0.1 5 0.0 191 0.3
Allowance for loan losses 1,277 1.4 1,249 1.4 1,292 1.7
------ ----- ------ ----- ------ -----
Total loans $94,057 100.0% $87,720 100.0% $75,053 100.0%
====== ===== ====== ===== ====== =====
(1) Includes loans held for sale totaling $380,000, $751,000 and $756,000 at
December 31, 2000, 1999 and 1998, respectively.
The following table sets forth the contractual maturities of loans at
December 31, 2000. The table does not include unscheduled prepayments.
At December 31, 2000
Up to After 1 After 5
1 to 5 years Total
year years
------ ------- ------- -------
(Dollars in thousands)
Real estate loans
Residential 1-4 family $ 3,421 $ 3,742 $ 21,757 $ 28,920
Construction 5,420 0 0 5,420
Commercial 2,809 4,094 19,728 26,631
Other loans $11,260 $19,827 $ 3,426 $ 34,513
------- ------- -------- --------
Total $22,910 $27,663 $ 44,911 $ 95,484
------- ------- -------- --------
Less:
Undisbursed loan funds 78
Unearned discounts and
deferred loan fees 72
Allowance for loan losses 1,277
------
Loans, net $ 94,057
======
The following table sets forth, at December 31, 2000, the dollar amount of
all loans due after December 31, 2001 and whether such loans had fixed interest
rates or adjustable interest rates:
Fixed Adjustable Total
(Dollars in thousands)
Real estate loans
Residential 1-4 family $ 10,443 $ 15,056 $ 25,499
Commercial real 6,598 17,224 23,822
Other loans 14,355 8,898 23,253
-------- -------- --------
Total $ 31,396 $ 41,178 $ 72,574
======== ======== ========
Nonperforming Assets. The following table sets forth information with respect to
nonperforming assets, including non-accrual loans and real estate acquired
through foreclosure or by deed in lieu of foreclosure ("real estate owned").
Under the original terms of the Bank's non-accrual loans at December 31, 2000,
interest earned on such loans during the year ended December 31, 2000 would not
have been significantly different than reported.
At December 31,
--------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands)
Total non-accrual loans $ 406 $ 466 $ 144 $ 172 $ 140
Accruing loans over 90 26 - - - -
days past due
Real estate owned ("REO") 408 60 - 125 27
---- ---- ---- ---- ----
Total nonperforming assets $ 840 $ 526 $ 144 $ 297 $ 167
==== ==== ==== ==== ====
Nonperforming assets
to total
adjusted loans 0.9% 0.6% 0.2% 0.3% 0.3%
Nonperforming assets
to total assets 0.5% 0.4% 0.1% 0.2% 0.2%
Allowance for loan losses
to non-performing assets 152.0% 237.5% 897.2% 448.9% 490.9%
IV. Summary of Loan Loss Experience
Allowance for Losses on Loans. The following table sets forth an analysis of the
allowance for loan losses at the dates indicated.
At December 31,
------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands)
Balance at beginning of year $ 1,249 $ 1,292 $ 1,335 $ 820 $ 826
Provision for loan losses:
Real estate loans - - 17 18 4
Non-real estate loans 85 15 73 42 11
----- ----- ----- ---- ----
Total provision for loan losses 85 15 90 60 15
----- ----- ----- ---- ----
Allowance for loans of acquired bank:
Allowance for real estate
loans of acquired bank - - - 92 -
Allowance for non-real estate loans
of acquired bank - - - 369 -
----- ----- ----- ---- ----
Total of allowance for loans of
acquired bank - - - 461 -
----- ----- ----- ---- ----
Recoveries:
Real estate loans 2 29 15 1 -
Non-real estate loans 14 27 23 10 6
----- ----- ----- ---- ----
Total recoveries 16 56 38 11 6
----- ----- ----- ---- ----
Charge-offs:
Real estate loans 11 26 9 - 1
Non-real estate loans 62 88 162 17 26
----- ----- ----- ----- -----
Total charge-offs 73 114 171 17 27
----- ----- ----- ----- -----
Balance at end of year $ 1,277 $ 1,249 $ 1,292 $ 1,335 $ 820
===== ===== ===== ===== =====
Ratio of allowance for loan
losses to total outstanding
loans (gross) 1.3% 1.4% 1.7% 1.5% 1.3%
Ratio of net charge-offs during
the year to average loans
outstanding during the year 0.1% 0.1% 0.2% 0.0% 0.0%
Ratio of allowance for loan
losses to total
non-performing loans 314.6% 268.0% 897.2% 773.9% 584.9%
The following table sets forth the allocation of the allowance for loan losses
at the dates indicated by category of loans. This allocation reflects
management's judgment as to risks inherent in the types of loans indicated, but
the general reserves included in the table are not restricted and are
available to absorb all loan losses. The amount allocated in the following
table to any category should not be interpreted as an indication of expected
actual charge-offs in that category.
At December 31,
2000 1999 1998
----------------- ----------------- -----------------
% of % of % of
Loans Loans Loans
in Each in Each in Each
Category Category Category
to Total to Total to Total
Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Allocated to:
Real estate $ 503 39% $ 512 41% $ 509 39%
Non-real
estate loans 774 61 737 59 783 61
------ ---- ------ ---- ------ ----
Total $1,277 100% $1,249 100% $1,292 100%
====== ==== ====== ==== ====== ====
V. Average Deposits by Classification
The following table sets forth the amounts of deposits by type of account
at the dates indicated.
At December 31,
------------------------------------------------------------------------
2000 1999 1998
--------------------- -------------------- -----------------------
Percent Percent Percent
Average of Average Average of Average Average of Average
Balance Total Rate Balance Total Rate Balance Total Rate
------- ----- ---- ------- ----- ---- ------- ----- ----
(Dollars in thousands)
Non-interest
demand $ 10,251 8.5% 0.00% $ 9,950 8.9% 0.00% $ 10,677 8.9% 0.00%
Money market
deposits 14,028 11.6% 3.60% 16,311 14.6% 3.62% 17,866 15.0% 3.63%
Checking/NOW 26,227 21.7% 4.06% 20,851 18.6% 2.73% 23,217 19.5% 3.73%
Savings 10,885 9.0% 3.62% 10,561 9.4% 3.21% 9,357 7.8% 3.11%
Certificates
of deposit 59,390 49.2% 5.56% 54,334 48.5% 5.13% 58,261 48.8% 5.54%
------ ---- -------- -------- ------
Total deposits $120,781 100.0% 4.36% $112,007 100.0% 3.83% $119,378 100.0% 4.22%
======== ====== ======== ====== ======== ======
As of December 31, 2000, the aggregate amount outstanding of jumbo certificates
of deposit (amounts of $100,000 or more) was $10.3 million. The following table
presents the maturities of these time certificates of deposit at such date:
(Dollars in thousands)
3 months or less $ 3,862
Over 3 months through 6 months 2,229
Over 6 months through 12 months 3,384
Over 12 months 789
---------
Total $ 10,264
=========
VI. Return on Equity and Assets
At or for the years ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Return on average assets .73% .65% .69% 1.03% .70%
Cash return on average assets .88 .80 .85 1.10 .78
Return on average equity 7.95 6.82 7.73 9.18 6.54
Cash return on average equity 9.52 8.37 9.45 9.84 7.29
Equity to total assets 9.60 9.28 9.75 8.48 10.96
Dividend payout ratio 35.71 40.98 35.71 31.00 27.43
Net earnings per share, basic (1) $ .71 $ .60 $ .66 $ .72 $ .48
Net earnings per share, diluted (1) .70 .58 .63 .70 .47
Net cash earnings per share,
diluted (1) (2) .83 .71 .77 .75 .52
ITEM 2. PROPERTIES
The following table sets forth information concerning the offices of the Bank.
Year Opened
Address or Acquired Square Footage Title
800 Poyntz Avenue
Manhattan, KS 66505 1974 12,000 Owned
1741 N. Washington
Auburn, KS 66402 1991 8,000 Owned
6100 SW 21st Street
Topeka, KS 66667 1997 3,500 Leased
102 S 6th
Osage City, KS 66523 1997 8,000 Owned
1000 Westloop
Manhattan, KS 66502 2000 400 Leased
530 Lincoln
Wamego, KS 66547 2000 5,400 Leased
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Company or the Bank is a
party, other than ordinary routine litigation incidental to the Bank's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company incorporates by reference the information called for by Item 5 on
this Form 10-K from the section captioned "Stock Price Information" of the
Company's 2000 Annual Report to Stockholders for the fiscal year ended December
31, 2000 (attached as Exhibit 13.1).
ITEM 6. SELECTED FINANCIAL DATA
The Company incorporates by reference the information called for by Item 6 of
this Form 10-K from the sections entitled "Selected Financial and Other Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" of the Company's 2000 Annual Report to Stockholders for the fiscal
year ended December 31, 2000 (attached as Exhibit 13.1).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company incorporates by reference the information called for by Item 7 of
this Form 10-K from the section entitled "Management's Discussion and Analysis
of Financial Condition and Results of Operations" of the Company's 2000 Annual
Report to Stockholders for the fiscal year ended December 31, 2000 (attached as
Exhibit 13.1).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The Company incorporates by reference the information called for by Item 8 of
this Form 10-K from the Financial Statements set forth in the Company's 2000
Annual Report to Stockholders for the fiscal year ended December 31, 2000
(attached as Exhibit 13.1).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The Company incorporates by reference the information called for by Item 10 of
this Form 10-K regarding directors of the Company from the section entitled
"Election of Directors" of the Company's Proxy Statement for the annual meeting
of stockholders to be held May 23, 2001 (the "2001 Proxy Statement") (attached
as Exhibit 99.1).
Section 16(a) of the Exchange Act requires that the Company's executive
officers, directors and persons who own more than 10% of their Company's Common
Stock file reports of ownership and changes in ownership with the Securities and
Exchange Commission and with the exchange on which the
Company's shares of Common Stock are traded. Such persons are also required
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on the Company's review of the copies of such forms, the Company
is not aware that any of its directors and executive officers or 10%
stockholders failed to comply with the filing requirements of Section 16(a)
during 2000.
Executive Officers
The executive officers of the Company, each of whom is also currently an
executive officer of the Bank and both of whom serve at the discretion of the
Board of Directors, are identified below:
Name Age Positions with the Company
Patrick L. Alexander 48 President and Chief Executive Officer
Mark A. Herpich 33 Vice President, Secretary, Chief Financial
Officer and Treasurer
The executive officers of the Bank are identified below:
Name Age Positions with the Bank
Patrick L. Alexander 48 President and Chief Executive Officer
Mark A. Herpich 33 Senior Vice President and Chief Financial
Officer
Michael E. Scheopner 39 Executive Vice President, Credit Risk
Manager
Dean R. Thibault 49 Executive Vice President
Dennis D. Wohler 58 Senior Vice President
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates by reference the information called for by Item 11 of
this Form 10-K from the section entitled "Executive Compensation" of the 2001
Proxy Statement, except for information contained under the headings
"Compensation Committee Report on Executive Compensation" and "Performance
Graph".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates by reference the information called for by Item 12 of
this Form 10-K from the section entitled "Security Ownership of Certain
Beneficial Owners" of the 2001 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates by reference the information called for by Item 13 of
this Form 10-K from the section entitled "Transactions with Directors, Officers
and Associates" of the 2001 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
ITEM 14(a)1 and 2. Financial Statements and Schedules
MNB BANCSHARES, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS
The following audited Consolidated Financial Statements of the Company and its
subsidiaries and related notes and auditors' report are incorporated by
reference from the Company's 2000 Annual Report to Stockholders for the fiscal
year ended December 31, 2000 (attached as Exhibit 13.1).
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 2000 and 1999
Consolidated Statements of Earnings - Years Ended
December 31, 2000, 1999 and 1998
Consolidated Statements of Stockholders' Equity - Years Ended December 31,
2000, 1999 and 1998
Consolidated Statements of Cash Flows - Years Ended December 31, 2000,
1999 and 1998
Notes to Consolidated Financial Statements
All schedules are omitted because they are not required or are not applicable or
the required information is shown in the financial statements incorporated by
reference or notes thereto.
Item 14(a)3. Exhibits
The exhibits required by Item 601 of Regulation S-K are included with this Form
10-K and are listed on the "Index to Exhibits" immediately following the
signature page.
Item 14(b). Reports on Form 8-K
A report on Form 8-K was filed on January 26, 2001 to report the issuance of a
press release announcing the Company' earnings for the quarter and year ended
December 31, 2000 and the declaration of a cash dividend to
stockholders.
***
Upon written request to the President of the Company, P.O. Box 308, Manhattan,
Kansas 66505-0308, copies of the exhibits listed above are available to
stockholders of the Company by specifically identifying each exhibit desired in
the request. A fee of $.20 per page of exhibit will be charged to stockholders
requesting copies to cover copying and mailing costs. The Company's filings with
the Securities and Exchange Commission are also available via the Internet at
www.sec.gov.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MNB BANCSHARES, INC.
(Registrant)
By: /s/ Patrick L. Alexander By: /s/ Mark A. Herpich
Patrick L. Alexander Mark A. Herpich
President and Chief Executive Officer Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE
/s/Patrick L. Alexander March 16, 2001 President, Chief
Executive Officer and Director
- -------------------------- --------------
Patrick L. Alexander Date
/s/ Brent A. Bowman March 16, 2001 Chairman of the Board
- -------------------------- --------------
Brent A. Bowman Date
/s/ Joseph L. Downey March 16, 2001 Director
- -------------------------- --------------
Joseph L. Downey Date
/s/ Charles D. Green March 16, 2001 Director
- -------------------------- --------------
Charles D. Green Date
/s/ Vernon C. Larson March 16, 2001 Director
- -------------------------- --------------
Vernon C. Larson Date
/s/ Jerry R. Pettle March 16, 2001 Director
- -------------------------- --------------
Jerry R. Pettle Date
/s/ Susan E. Roepke March 16, 2001 Director
- -------------------------- --------------
Susan E. Roepke Date
/s/ Donald J. Wissman March 16, 2001 Director
- -------------------------- --------------
Donald J. Wissman Date
INDEX TO EXHIBITS
Exhibit
Number Description
3.1 Articles of Incorporation of the Company - Incorporated by
reference from Exhibit 3.1 of the Form S-1 of the Company,
as amended, filed on September 3, 1992 (Registration No.
33-51710)
3.2 Bylaws of the Company - Incorporated by reference from
Exhibit 3.2 of the Form S-1 of the Company, as amended,
filed on September 3, 1992 (Registration No. 33-51710)
4.1 Specimen Common Stock Certificate of the Company -
Incorporated by Reference from Exhibit 4.1 of the Form S-1
of the Company, as amended, filed on September 3, 1994
(Registration No. 33-51710)
10.1 MNB Bancshares, Inc. 1992 Stock Option
Plan - Incorporated by reference from Exhibit A to the
Company's Proxy Statement for the Annual Meeting of
Stockholders held May 17, 1994
10.2 Stock Option Agreement between the Company
and Patrick L. Alexander - Incorporated by
reference from Exhibit 10.2 to Form 10-K dated
March 26, 1994
10.3 Stock Option Agreement between the Company
and Vernon C. Larson - Incorporated by
reference from Exhibit 10.3 to Form 10-K dated
March 26, 1994
10.4 Stock Option Agreement between the Company
and Brent A. Bowman - Incorporated by
reference from Exhibit 10.4 to Form 10-K dated
March 26, 1994
10.5 Stock Option Agreement between the Company
and Charles D. Green - Incorporated by
reference from Exhibit 10.6 to Form 10-K dated
March 26, 1994
10.6 Stock Option Agreement between the Company
and Jerry R. Pettle - Incorporated by
reference from Exhibit 10.9 to Form 10-K dated
March 26, 1994
10.7 MNB Bancshares, Inc. 1998 Stock Incentive Plan -
Incorporated by reference from Exhibit 4.1 of the
Form S-8 of the Company filed on December 4, 1998.
10.8 Employment Agreement among the Company,
Security National Bank and Patrick L.
Alexander - Incorporated by reference from
Exhibit 10.15 to Form 10-K dated March 26,
1994
10.9 Security National Bank Deferred Compensation
Plan, dated December 21, 1994 - Incorporated
by reference from Exhibit 10.20 to Form 10-K
dated March 26, 1994
13.1 2000 Annual Report to Stockholders of the Company
for the fiscal year ended December 31, 2000
21.1 Subsidiaries of the Company
23.1 Consent of KPMG LLP
99.1 Form of Proxy Statement of the Company for the Annual
Meeting of Stockholders to be held May 23, 2001
EXHIBIT 13.1
CORPORATE PROFILE
MNB Bancshares, Inc. is a bank holding company which is headquartered in
Manhattan, Kansas. Its wholly-owned subsidiary, Security National Bank, also has
its home office in Manhattan, Kansas, with branch offices operating in
Auburn, Manhattan, Osage City, Topeka and Wamego, Kansas. Security National
Bank is dedicated to providing quality services to its local communities and
continues to originate commercial real estate and non real estate loans,
small business loans, residential mortgage loans, consumer loans, home equity
loans, and student loans.
MNB Bancshares was first listed on the Nasdaq Stock Market Small-Cap
Market System in 1993 (symbol "MNBB", with a newspaper abbreviation of "MNB
Bn"). The Company was formed in 1992 to become the holding company for Security
National Bank, which was converted from a federal mutual savings association.
Since our listing on Nasdaq, MNB Bancshares has nearly doubled in size and
has entered numerous markets outside of Manhattan through a series of
acquisitions and start-up branches. Our continuing focus is to concentrate on
being the premier community banking organization in the markets we currently
serve and we are continuing to explore and evaluate opportunities to expand and
provide services to new complimentary markets, through strategic acquisitions
and establishing de novo branches where appropriate, in an effort to enhance our
asset base, long-term earnings and resources.
TO OUR STOCKHOLDERS, CUSTOMERS AND FRIENDS
Growth is the word that best describes the performance of MNB Bancshares, Inc.
in 2000. Growth in profits allowed us to report record earnings of $1,080,000
and basic earnings per share of $.71. Cash earnings in 2000 were a record
$1,293,000, or $.83 per diluted share. Total assets grew to $153 million while
net loans grew to $94.1 million. Your company also opened two new banking
facilities, one in the Dillons supermarket in west Manhattan and one as a result
of our acquisition of the Commercial Federal Bank branch in Wamego, Kansas. Our
deposit products expanded to include Internet banking and Overdraft Privilege,
which contributed to our improvement in fees and service charges to a record
level of $1.1 million. We are very excited about the outstanding success your
company experienced in 2000. This success has further strengthened the solid
infrastructure platform from which we can continue the growth and profitability
improvements of this past year. In the space below I will expand upon our major
accomplishments and share with you my optimism for the future.
Net loans outstanding at year-end 2000 totaled $94.1 million versus $87.7
million at year-end 1999. Commercial loans grew from $20.5 million to $24.3
million during the last twelve months, an increase of 19 percent. Consumer loans
grew from $7.2 million at year-end 1999 to $8.7 million at year-end 2000, an
increase of 21 percent. These increases highlight the success our lending team
continues to experience in building personal relationships within our
communities. These relationships ultimately result in obtaining the opportunity
to establish profitable banking relationships based upon trust and the level of
service which your company provides. This growth in loans has been accomplished
while at the same time keeping criticized loans and delinquency rates at very
acceptable levels.
The prospects for loans we expect to record going into 2001 remains active and
indicates continued growth. We fully expect the outstanding loan growth we have
experienced over the last two years to continue to support the
improved earnings fundamentals of your company. However, a slowing economy
could have a negative impact on our expectations for loan growth in 2001.
Furthermore, it could have an adverse impact on the outstanding asset quality
we have enjoyed the past several years. Your management team continues to
apply rigorous credit underwriting standards to minimize any adverse
implications that our loan portfolio might experience as a result of an
economic downturn.
Total non-interest income grew from $1.0 million in 1999 to $1.2 million in
2000, an increase of 21 percent. This significant growth in non-interest income
was fueled by a $295 thousand increase in fees and service charges. The primary
contributor to this increase was the introduction of our new Overdraft Privilege
checking account service which gives our customers increased peace of mind and
flexibility in meeting their cash management needs. Net overdraft fee income
increased from $326 thousand in 1999 to $591 thousand in 2000. Also contributing
to the increase in non-interest income was a $52 thousand increase in loan fees
and service charges as loan activity in the consumer and commercial categories
continues to increase. Changes made in our mortgage lending area in 2000 should
further contribute to non-interest income growth. We have enhanced our mortgage
loan origination management team and revised our compensation structure. We
expect these steps to increase our gains on sale of loans as increased loan
originations are sold into the secondary real estate market, creating additional
income and reversing a two-year downward trend in this area. Finally, our
Internet banking service continues to grow in customer acceptance and
utilization. While this service is in its infancy, we expect that it will
ultimately be a contributor to our non-interest income sources and deposit
growth.
Deposit growth continues to be a top priority for your company. Deposits are the
raw materials that allow us to continue our loan growth and the expansion of
banking relationships across the spectrum of our customers and prospective
customers. The continued development and growth of core deposit transaction
accounts provide us with a cost effective funding source to fund the expansion
of our asset base and corporate profitability. Not only is the growth of core
deposits a top priority for your company, it is a key issue for the entire
banking industry. The unprecedented growth in the equity and mutual funds
markets over the last decade have provided fierce competition for the
traditional sources of bank deposits. Cross-selling deposit products and further
capitalizing on our loan relationships has long been a priority for your company
and a key contributor to our growth in core deposit transaction accounts.
However, we must continue to refine our skills in this area and do a better job
of capturing our customer's total banking relationship. Additionally, we must
remain alert and innovative to new products, services, and strategies which will
allow us to grow deposits in a cost effective manner. I do not expect that this
challenge will be solved in the near future. However, it will continue to
command management's utmost attention to find cost effective approaches as
expeditiously as possible.
In January, 2000 we opened our first supermarket branch in the Westloop Dillons
store in west Manhattan. Additionally, in July, 2000 we acquired the Commercial
Federal Bank branch in Wamego, Kansas. Our Dillons branch provides us with
outstanding exposure, as we are located in an ideal area within the community's
leading supermarket. A significant number of Wamego residents work and shop in
either Manhattan or Topeka and appreciate the convenience our facilities
provide. These two facilities, in addition to the July, 2000 acquisition of the
Commercial Federal Bank branch and subsequent assimilation
into our existing facility in Osage City, not only provide us with an
enhanced banking presence in these respective markets, but have been
instrumental in our deposit growth over the past year. We fully expect that
the Dillons and Wamego banks will continue to grow and play an instrumental
role in our efforts to grow deposits.
Your management team is cognizant of the fact that we must achieve growth in
assets and income while at the same time containing non-interest expense. We are
pleased that we were able to add two new banking facilities and Internet banking
in 2000 and experience an increase in non-interest expense of only $238
thousand, or 6 percent. As our two new banking facilities grow, we should be
able to further leverage our operating expenses. We will continue to focus on
expense containment while at the same time striving to improve the levels of
service we deliver. As you can see, investments we have made in the past few
years in both our management team and our technology are beginning to pay
significant dividends toward your company's profitability.
Growth and leverage of corporate resources has been a key strategy over the
years as we have worked to enhance shareholder value. I expect that strategy to
continue in 2001. We will continue to focus on the internal growth of our
existing balance sheet and resources. We expect that this will translate into
increased market share, loans, deposits, and profitability. We will also
continue to be alert to opportunities for external growth. These opportunities
may present themselves as branch acquisitions, acquisitions of smaller community
banks, or mergers with other community financial institutions. We are
enthusiastic about our model of community banking where local decision makers
deliver banking services to customers located within their communities. As
financial institutions strive to spread increasing fixed costs over a larger
asset base in a highly competitive environment, we expect opportunities for bank
consolidation to increase. We expect that our community banking values will be a
very attractive alternative to those community bank owners looking to join
forces with another organization dedicated to the delivery of quality banking
services to the communities which they serve.
In summary, 2000 was an outstanding year for MNB Bancshares, Inc. Your
management team is optimistic about the company's prospects for 2001 and beyond.
We are dedicated to the continued growth of the organization's capabilities,
asset base, and profitability. I would like to thank you, our stockholders, for
your continued support. We will continue to strive to maintain your trust and
meet your expectations. I would also like to thank my associates for their
continuous efforts and dedication to the achievement of our goals. Without their
efforts our success would not be possible. I truly believe that we have
assembled an outstanding financial institution of which we can all be proud. I
am confident that your organization has the tools and the resources to continue
our record of growth and increasing profitability as we strive to enhance
shareholder value. We look forward to the challenges and opportunities that lie
ahead.
Sincerely,
Patrick L. Alexander
President and Chief Executive Officer
SELECTED FINANCIAL AND OTHER DATA OF MNB BANCSHARES, INC.
At or for the years ended December 31,
2000 1999 1998 1997 1996
(Dollars in thousands, except per
share amounts and percentages)
Selected Financial Data:
Total assets $152,897 $143,262 $135,830 $144,752 $103,420
Loans (1) 94,057 87,720 75,053 88,724 62,549
Investment securities 47,649 45,005 50,651 42,079 33,239
Deposits 130,186 112,336 115,062 122,209 86,710
Borrowings 6,498 16,699 6,530 9,099 3,615
Stockholders' equity 14,676 13,290 13,242 12,276 11,334
Book value per share (2) 9.56 8.73 8.78 8.28 7.71
Selected Operating Data:
Total interest income $ 10,884 $ 9,551 $ 10,289 $7,929 7,670
Total interest expense 6,035 4,988 5,593 4,038 4,049
Net interest income 4,849 4,563 4,696 3,891 3,621
Provision for loan losses 85 15 90 60 15
Net interest income after
provision for loan losses 4,764 4,548 4,606 3,831 3,606
Gains on sales of loans 95 141 384 99 75
Other noninterest income 1,118 861 828 591 608
Total noninterest income 1,213 1,002 1,212 690 683
Total noninterest expense 4,421 4,183 4,358 2,977 3,233
Income tax expense 476 463 478 471 339
Net earnings $ 1,080 $ 904 $ 982 $1,073 $ 717
Net earnings per share (2):
Basic $ .71 $ .60 $ .66 $ .72 $ .48
Diluted (3) .70 .58 .63 .70 .47
Cash diluted (4) .83 .71 .77 .75 .52
Dividends per share (2) .25 .24 .23 .22 .12
Other Data:
Return on average assets .73% .65% .69% 1.03% .70%
Cash return on average assets .88 .80 .85 1.10 .78
Return on average equity 7.95 6.82 7.73 9.18 6.54
Cash return on average equity 9.52 8.37 9.45 9.84 7.29
Equity to total assets 9.60 9.28 9.75 8.48 10.96
Net interest rate spread (5) 2.87 2.92 2.93 3.11 2.95
Net yield on average
interest-earning assets (6) 3.47 3.49 3.52 3.89 3.67
Average interest-earning assets to
average interest-bearing liabilities 114.01 114.85 114.17 119.29 117.37
Other expenses to average assets 2.99 3.03 3.07 2.86 3.15
Nonperforming loans to total loans 0.46 0.53 0.19 0.19 0.22
Net charge-offs to average loans 0.06 0.07 0.16 0.01 0.03
Nonperforming assets to total assets 0.55 0.37 0.11 0.21 0.16
Dividend payout ratio 35.71 40.98 35.71 31.00 27.43
Number of full service banking offices 6 4 4 5 2
(1) Loans are presented after adjustments for undisbursed loan funds, unearned
fees and discounts, and the allowance for loan losses.
(2) All per share amounts have been adjusted to give effect to the 5% stock
dividends paid by the Company annually since 1994 and the February, 1998
two-for-one stock split.
(3) Diluted net earnings per share, before FDIC special assessment (net of
tax) was $0.69 in 1996.
(4) Cash earnings exclude the after-tax effect of amortization of intangibles.
(5) Represents the difference between the average yield on interest-earning
assets and the average cost of interest-bearing liabilities.
(6) Represents net interest income as a percentage of average
interest-earning assets.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
MNB Bancshares, Inc. is a one-bank holding company incorporated under the
laws of the State of Delaware and is engaged in the banking business through its
wholly-owned subsidiary, Security National Bank. In January 2000, we opened an
in-store supermarket branch in Manhattan, Kansas. We also completed the purchase
of the Wamego and Osage City, Kansas branches of Commercial Federal Bank in July
2000, which had total deposits of $14 million and total loans of $1 million.
We achieved record net earnings of $1,080,000 in 2000, an increase of
$176,000, or 19.4%, over 1999. The 2000 earnings improvement reflects the
continued strengthening of management and systems directed at enhancing core
earnings for continued growth, profitability and financial strength. The return
on average assets was .73% compared to .65% in 1999. Return on average equity
was 7.95% and diluted net earnings per share was $.70. The cash return on
average equity was 9.52% and cash diluted earnings per share was $.83.
Consistent with 1999, the board of directors declared cash dividends of
twenty-five cents per share and a five percent stock dividend in 2000. On March
16, 2000, we announced the approval of a stock repurchase program enabling us to
repurchase up to 72,465 shares of our outstanding stock in the open market or
through privately negotiated transactions. During 2000, we acquired 5,681 shares
of our common stock at an average per share price of $8.00.
The tradition of quality assets continues and management's ongoing strategy
to diversify the deposit and loan portfolios in order to increase profitability
in the future has been successful. Focusing on customers' needs and the
development of full service banking relationships has been instrumental to our
success. We believe that our strong capital position puts us on solid ground and
provides an excellent base for further growth and expansion.
Security National Bank is principally engaged in the business of attracting
deposits from the general public and using such deposits, together with
borrowings and other funds, to originate commercial and consumer loans,
multi-family residential mortgage loans and one-to-four family residential
mortgage loans.
Deposits are insured by both the Savings Association Insurance Fund and the
Bank Insurance Fund of the Federal Deposit Insurance Corporation up to the
maximum amount allowed by applicable federal law and regulation. Our primary
regulator is the Office of the Comptroller of the Currency. Additionally, we are
subject to regulation by the Federal Deposit Insurance Corporation, as
administrator of the two insurance funds and by the Board of Governors of the
Federal Reserve System with respect to reserves required to be maintained
against deposits and certain other matters. We are a member of the Federal Home
Loan Bank of Topeka and the Federal Reserve Bank of Kansas City.
As a bank holding company, we are subject to regulation and supervision by
the Federal Reserve Board. We are also subject to various reporting and other
requirements under the federal securities laws and the regulations of the
Securities and Exchange Commission.
Currently, our business consists of ownership of Security National Bank, with
its main office in Manhattan and branch offices in Auburn, Manhattan, Osage
City, Topeka and Wamego, Kansas. We plan to continue exploring and evaluating
opportunities to expand and enter complementary markets in an effort to enhance
its asset base, long-term earnings and resources.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
SUMMARY OF PERFORMANCE. Net earnings for 2000 increased 19.4% to $1,080,000
compared to $904,000 for 1999. Diluted earnings per share for 2000 equaled $.70
compared to $.58 for 1999, while cash diluted earnings per share for 2000
equaled $.83 compared to $.71 for 1999. Cash earnings exclude the after-tax
effect of amortization of intangibles. Net interest income increased $286,000,
or 6.3%, from $4.6 million to $4.8 million. This improvement in net earnings and
net interest income was generally attributable to growth in the commercial,
commercial real estate and retail loan portfolios resulting in an increase of
$6.3 million in net loans outstanding during 2000. New fee and service charge
initiatives overcame a $47,000 decrease in gains on sale of loans and a $30,000
loss on sale of investments and resulted in an increase in noninterest income of
$211,000, or 21.0%, as compared to 1999. Noninterest expense increased $238,000,
or 5.7%, related primarily to the opening during January 2000 of our first
supermarket branch in west Manhattan and the Wamego and Osage City branch
acquisitions during July 2000.
Interest Income. Interest income increased by $1.3 million, or 14.0%, to $10.9
million in 2000. Average interest-earning assets increased from $130.6 million
in 1999 to $140.0 million in 2000. The average yield on interest-earning assets
improved from 7.3% in 1999 to 7.8% in 2000. Interest income on loans increased
$1.4 million, or 19.7%, to $8.2 million. Interest earned on securities and other
investments remained consistent at $2.7 million. The increase in interest income
was due to an increase in average loans, coupled with the increase in rates
experienced as interest-earning assets repriced during 2000. Despite a $2.9
million decrease in average investment securities and other investments, the
improvement in the investment portfolio yields allowed interest earned on
securities and other
investments to remain consistent at $2.7 million.
Interest Expense. Interest expense increased from $5.0 million in 1999 to $6.0
million in 2000, or 21.0%. Deposit interest expense increased 22.8% to $5.3
million compared to $4.3 million for 1999. Interest expense on borrowings,
consisting of advances from the Federal Home Loan Bank of Topeka and funds
borrowed for the acquisitions, increased $70,000 or 9.9% during this time
period. Average interest-bearing liabilities increased $8.7 million from $113.7
million in 1999 to $122.4 million in 2000, while the respective average cost
increased from 4.4% in 1999 to 4.9% in 2000. The rise in interest expense
resulted from an increase in deposits, an increase in interest rates and
additional borrowings from the Federal Home Loan Bank, offset partially by
principal repayments on our note payable. Most of the increase in deposits
resulted from the July, 2000 branch acquisitions.
Net Interest Income. Net interest income represents the difference between
income derived from interest-earning assets and the expense on interest-bearing
liabilities. Net interest income is affected by both (a) the difference between
the rates of interest earned on interest-earnings assets and the rates paid on
interest-bearing liabilities ("interest rate spread") and (b) the relative
amounts of interest-earning assets and interest-bearing liabilities.
Net interest income increased to $4.8 million in 2000 compared to $4.6 million
in 1999. This was the result of the average balance of interest-earning assets
increasing $8.9 million during 2000. The yield on interest-earning assets also
improved from 7.3% in 1999 to 7.8% in 2000, while the cost of interest-bearing
liabilities increased from 4.4% in 1999 to 4.9% in 2000. Our ratio of
interest-earning assets to interest-bearing liabilities decreased slightly from
114.9% in 1999 to 114.0% in 2000, which ultimately resulted in the net interest
margin remaining stable at 3.5% in 2000 and 1999.
Provision for Loan Losses. The provision for loan losses increased to $85,000
during 2000 compared to $15,000 in 1999. While the loan portfolio quality
remains strong, our review of the portfolio, coupled with loan growth during
1999 and 2000, prompted an increased provision. At December 31, 2000, the
allowance for loan losses was $1.3 million, or 1.3% of gross loans outstanding,
compared to $1.2 million, or 1.4%, at December 31, 1999.
Noninterest Income. Noninterest income increased $211,000, or 21.0%, to $1.2
million in 2000. Fees and service charge income increased from $806,000 to $1.1
million, or by 36.6%, relating to new products and services initiated during
2000. Partially offsetting this increase was a decline in gains on sale of loans
by $47,000, or 33.2% to $95,000, as loan originations declined due to the
increase in home mortgage interest rates during 2000. Losses on sale of
investment securities available for sale were realized in the amount of $30,000
in 2000, compared to realized gains on sale of investment securities available
for sale of $7,000 in 1999. The loss on sale of investment securities in 2000
resulted from restructuring the investment portfolio to obtain higher yielding
investments.
Noninterest income (000's): 2000 1999 1998
---- ---- ----
Fees and service charges $1,100 $806 $736
Gains on sales of loans 95 141 384
Other 18 55 92
----- ----- -----
Total noninterest income: $1,213 $1,002 $1,212
Noninterest Expense. Noninterest expense increased 5.7% to $4.4 million for
2000, resulting from increased expenses for compensation and benefits, and
occupancy and equipment. These increased expense categories, related primarily
to opening and operating expenses of our new Dillons supermarket branch which
opened in January 2000, and our Wamego and Osage City branch acquisitions during
July 2000, were partially offset by reductions in professional fees and federal
deposit insurance premiums. Amortization of intangibles increased 5.2% from
$226,000 to $238,000 as a result of the July 2000 branch acquisitions.
AVERAGE ASSETS/LIABILITIES. The following table sets forth information relating
to average balances of interest-earning assets and interest-bearing liabilities
for the years ended December 31, 2000, 1999 and 1998. This table reflects the
average yields on assets and average costs of liabilities for the periods
indicated (derived by dividing income or expense by the monthly average balance
of assets or liabilities, respectively) as well as the "net interest margin"
(which reflects the effect of the net earnings balance) for the periods shown.
AVERAGE BALANCE SHEETS-AVERAGE YIELDS AND RATES
Year Ended December 31, 2000 Year Ended December 31, 1999 Year Ended December 31, 1998
Average Average Average Average Average Average
Balance Interest Yield/Rate Balance Interest Yield/Rate Balance Interest Yield/Rate
========================= ======================= ========================
(dollars in thousands)
ASSETS:
Interest-earning assets
Investment securities (1) $47,760 $2,687 5.63% $50,613 $2,705 5.34% $52,686 $2,962 5.62%
Loans receivable, net (2) 91,793 8,197 8.93 80,019 6,846 8.56 80,788 7,327 9.07
------ ----- ------ ----- ------ ----
Total interest-earning assets 139,553 10,884 7.80% 130,632 9,551 7.31% 133,474 10,289 7.71%
------- ------ ------- ----- ------- ------
Non interest-earning assets 8,091 7,552 8,402
----- ----- -----
Total $147,644 $138,184 $141,876
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Certificates of deposit $59,390 $3,300 5.56% $ 54,334 $2,788 5.13% $ 58,261 $3,230 5.54%
Money market deposits 14,028 505 3.60 16,311 590 3.62 17,866 648 3.63
Other deposits 37,112 1,459 3.93 31,413 908 2.89 32,574 1,158 3.55
FHLB advances and other
borrowings 11,871 771 6.49 11,684 702 6.01 8,212 557 6.78
------ ----- ------ ----- ------ -----
Total interest-bearing
liabilities 122,401 6,035 4.93% 113,742 4,988 4.39% 116,913 5,593 4.78%
------- ----- ------- ----- ------- -----
Non interest-bearing
liabilities 11,666 11,193 12,254
Stockholders' equity 13,576 13,249 12,709
------ ------ ------
Total $147,643 $138,184 $141,876
======= ======= =======
Net interest income $4,849 $4,563 $4,696
===== ===== =====
Interest rate spread (3) 2.87% 2.93% 2.93%
Net interest margin (4) 3.47% 3.49% 3.52%
Ratio of average interest-earning assets
to interest-bearing liabilities 114.01% 114.85% 114.17%
====== ====== ======
(1) Income on investment securities includes all securities, interest bearing
deposits in other financial institutions and stock owned in the Federal
Home Loan Bank and the Federal Reserve Bank.
(2) Includes non-accrual loans.
(3) Interest rate spread represents the difference between the average yield
on interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
GENERAL. Net earnings for 1999 decreased 7.9% to $904,000 compared to $982,000
for 1998. This decrease in net earnings is the result of a decrease in average
loans outstanding. Gains on sale of loans also decreased as a result of reduced
refinancing of mortgage loans, but was offset by fee and service charge
initiatives and non-interest expense savings related to the assimilation of
Freedom. Net interest income after provision for loan losses decreased $58,000,
or 1.3%, to $4.5 million. Gains on sale of loans decreased 63.2%, or $243,000,
to $141,000, fees and service charges increased
$70,000 or 9.5%, to $806,000, and non-interest expense decreased $175,000 or
4.0%, to $4.2 million.
Interest Income. Interest income decreased by $738,000, or 7.2%, to $9.6 million
in 1999. Average interest-earning assets decreased from $133.5 million in 1998
to $130.6 million in 1999. The average yield on interest-earning assets
decreased from 7.7% in 1998 to 7.3% in 1999. Interest income on loans decreased
$481,000, or 6.6%, to 6.8 million. Interest earned on securities and other
investments decreased $257,000, or 8.7%, to $2.7 million. The decrease in
interest income was due to a decrease in average loans and investments, which
was coupled with the decline in rates experienced as interest-earning assets
repriced during 1999. We experienced a significant 31.3%, or $11.4 million,
decline in one-to-four family loans during 1998 as a result of borrowers taking
advantage of declining mortgage loan interest rates. In accordance with our
interest rate risk guidelines, the majority of the long-term fixed rate mortgage
loans originated in 1998 were sold to secondary market investors. While we were
able to fund other types of loans as the loans on one-to-four family residences
were refinanced, the volume of refinancings was so great that a significant
amount of the funds available for investment were invested in relatively short
term investment securities, which typically carry lower interest rates than can
be obtained on commercial and consumer loans. 1998's decline in loans was
countered during 1999 by increasing commercial, commercial real estate and
consumer loans by $10.9 million. This growth was a result of successful
relationships developed by our management team. Interest income on other
investments decreased substantially as a result of a decrease in funds available
for short-term overnight interest bearing deposits.
Interest Expense. Interest expense decreased from $5.6 million in 1998 to $5.0
million in 1999, or 10.8%. Deposit interest expense decreased 14.9% to $4.3
million compared to $5.0 million for 1998. Interest expense on borrowings,
consisting of advances from the Federal Home Loan Bank of Topeka and funds
borrowed for the acquisition of Freedom Bancshares increased $145,000, or 25.9%
during this time period. Average interest-bearing liabilities decreased $3.2
million from $116.9 million in 1998 to $113.7 million in 1999, while the
respective average cost declined from 4.8% in 1998 to 4.4% in 1999. The
decreased expense on deposits was due to lower average balances and the
reduction in interest rates. Interest on borrowed funds increased as a result of
borrowing to fund the loan growth.
Net Interest Income. Net interest income represents the difference between
income derived from interest-earning assets and the expense on interest-bearing
liabilities. Net interest income is affected by both (a) the difference between
the rates of interest earned on interest-earnings assets and the rates paid on
interest-bearing liabilities ("interest rate spread") and (b) the relative
amounts of interest-earning assets and interest-bearing liabilities.
Net interest income decreased to $4.6 million in 1999 compared to $4.7
million in 1998. This was the result of the average balance of interest-earning
assets decreasing $2.8 million during 1999. The yield on interest-earning assets
declined from 7.7% in 1998 to 7.3% in 1999, while the cost of interest-bearing
liabilities also declined from 4.8% in 1998 to 4.4% in 1999. The ratio of
interest-earning assets to interest-bearing liabilities increased slightly from
114.2% in 1998 to 114.9% in 1999, which ultimately resulted in the net interest
margin remaining flat at 3.5% in 1999
and 1998.
Provision for Loan Losses. The provision for loan losses decreased to $15,000
during 1999 compared to $90,000 in 1998. The decreased provision resulted from
the decrease in the one-to-four family residential loan portfolio as a result of
the significant refinancing experienced in 1998. At December 31, 1999, the
allowance for loan losses was $1.2 million, or 1.4% of gross loans outstanding,
compared to $1.3 million, or 1.7%, at December 31, 1998.
Noninterest Income. Noninterest income decreased $210,000, or 17.3%, to $1.0
million in 1999. Fees and service charge income increased from $736,000 to
806,000, or by 9.5%. Gains on sale of loans decreased $243,000, or 63.2% to
$141,000. Gains on sale of investment securities available for sale were
realized in the amount of $11,000 in 1998 and $7,000 in 1999 as we sought to
reposition the investment securities portfolio. The gains on sale of loans were
a result of decreased loan originations due to refinancing because of higher
interest rates. The increase in fees and service charge income was primarily a
result of analyzing our products and services offered.
Noninterest Expense. Noninterest expense decreased 4.0% to $4.2 million for
1999. This decrease was due in part to the continued assimilation of the Freedom
Bancshares acquisition. Amortization of intangibles decreased 8.1% from $246,000
to $226,000 resulting from core deposit amortization. Professional fees
decreased $73,000 from $212,000 to $139,000 as a result of expenses incurred in
1998 which were not encountered in 1999 relating to the acquisition, expenses
related to Year 2000 issues and fees incurred for professional services used for
acquiring new personnel during 1998. Other operating expense decreased 7.3% to
$1.0 million due primarily to cost savings associated with the acquisition.
CAPITAL RESOURCES AND LIQUIDITY
Asset Quality and Distribution. Our total assets were $152.9 million at December
31, 2000 compared to $143.3 million at December 31, 1999. This increase was
primarily attributable to the 7.2% increase in loans experienced during 2000 and
a 5.8% increase in investment securities, which was funded by branch acquisition
proceeds and deposit growth. Our primary ongoing sources of funds are deposits,
proceeds from principal and interest payments on loans and investment securities
and proceeds from the sale of mortgage loans and investment securities. While
maturities and scheduled amortization of loans are a predictable source of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, competition, and the restructuring of the
financial services industry.
Our primary investing activities are the origination of loans and the
purchase of investment securities. During the years ended December 31, 2000,
1999 and 1998, we purchased investment securities aggregating $18.0 million,
$15.9 million and $27.1 million, respectively. These purchases were funded
primarily by deposits, proceeds from the sale of fixed rate mortgage loans and
investment securities and maturing investment securities. Generally, we
originate fixed rate mortgage loans for immediate sale and do not originate and
warehouse those loans for resale in order to speculate on interest rates. During
the years ended December 31, 2000, 1999 and 1998, we originated loans for sale
of approximately $8.2 million, $12.3 million and $33.0 million, respectively.
The decline in loans originated for sale is attributable to
the increase in home mortgage interest rates.
LOAN PORTFOLIO COMPOSITION COMPARISON (000's):
Balance Balance
Type 12/31/00 12/31/99 % Change
- ---- -------- -------- --------
1-4 family residence $28,540 $27,126 5.2%
Commercial real estate 32,050 31,635 1.3%
Consumer & commercial
non-mortgage 34,514 29,529 16.9%
------ ------
$95,104 $88,290
====== ======
We believe that the quality of the loan portfolio continues to be strong as
evidenced by the small number and amount of loans past due one month or more. As
of December 31, 2000, twenty-two real estate loans were more than 30 days past
due, with a total balance of $1.2 million, which was 1.3% of total loans
outstanding. Six of these loans totaling $351,000 were on non-accrual status as
of December 31, 2000. Excluding guaranteed student loans, there were
twenty-seven consumer loans in the amount of $250,000, or 0.3% of the total loan
portfolio, over 30 days past due and two of these loans with a balance of
$26,000 were on non-accrual status. Additionally, three commercial loans
totaling $144,000, or 0.2% of the total loan portfolio, were past due over 30
days. One of these commercial loans with a balance of $8,000 was on non-accrual
status.
Liability Distribution. At December 31, 2000, total deposits increased $3.4
million from December 31, 1999, excluding the deposits acquired in the July 2000
branch acquisitions totaling $14 million. Borrowings decreased $10.0 million as
the increased deposit balances allowed us to fund the loan growth experienced in
2000 and reduce our borrowing levels. In addition, $125,000 was paid on
borrowings for the Freedom Bancshares acquisition.
The deposit base has remained relatively consistent with the prior year.
Noninterest-bearing demand deposits and NOW accounts at the end of 2000 totaled
$42.6 million, or 32.7% of deposits, compared to $30.9 million, or 27.5% of
deposits at December 31, 1999. Money market deposit accounts were 9.6% of the
portfolio and totaled $12.5 million, compared to $16.3 million at December 31,
1999 and savings accounts totaled $12.0 million compared to $10.0 million at
December 31, 1999. Certificates of deposit were $63.1 million, or 48.5% of the
portfolio compared to $55.1 million, or 49.1% at December 31, 1999.
Certificates of deposit at December 31, 2000, which were scheduled to mature
in one year or less, totaled $51.8 million. Historically, maturing deposits have
generally remained with our bank and we believe that a
significant portion of the deposits maturing in one year or less will remain
with us upon maturity.
DEPOSIT PORTFOLIO COMPOSITION COMPARISON (000's):
Balance Balance
Type 12/31/00 12/31/99 % Change
- ---- -------- -------- --------
DDA $10,721 $10,125 5.9%
NOW 31,848 20,819 53.0%
MMDA 12,543 16,254 (22.8%)
Savings 11,963 10,017 19.4%
Certificates 63,111 55,121 14.5%
------ ------
$130,186 $112,336
======= =======
CASH FLOWS. Cash flows provided by operating activities equaled $1.9 million for
2000, compared to $1.7 million in 1999. This increase in cash flows provided by
operating activities resulted from the stabilization of loans held for sale and
improved earnings.
Net cash provided by investing activities was $4.7 million in 2000 compared
to net cash used in investing activities of $8.5 million in 1999. Net loans
increased approximately $6.4 million in 2000 versus an increase of $12.8 million
in 1999. Proceeds from sales of investment securities available-for-sale were
$2.3 million in 2000 versus $5.9 million in 1999. No purchases of investment
securities held-to-maturity were made in 2000 or 1999. Purchases of investment
securities available-for-sale in 2000 were $18.0 million compared to $15.9
million in 1999. We received $13.1 million in cash from the July 2000 branch
acquisitions.
Net cash used in financing activities was $7.1 million in 2000 compared to
$7.2 million provided in 1999. Deposits increased $3.4 million in 2000 compared
to a decrease of $2.7 million in 1999 and Federal Home Loan Bank advances
decreased $10.0 million in 2000 compared to an increase of $11.0 million in
1999. In addition, $125,000 was paid on the line of credit utilized to finance
the purchase of Freedom Bancshares and $45,000 was utilized to purchase shares
of our stock.
Liquidity. Our most liquid assets are cash and cash equivalents and investment
securities available for sale. The level of these assets are dependent on our
operating, financing, lending and investing activities during any given period.
At December 31, 2000 and 1999, these liquid assets totaled $50.6 million and
$47.7 million, respectively. During periods in which we are not able to
originate a sufficient amount of loans and/or periods of high principal
prepayments, we increase our liquid assets by investing in short-term U.S.
Government and agency securities or high-grade municipal securities.
Liquidity management is both a daily and long-term function of our strategy.
Excess funds are generally invested in short-term investments. In the event we
require funds beyond our ability to generate them internally, additional funds
are available through the use of Federal Home Loan Bank advances, a line of
credit with the Federal Home Loan Bank or through sales of securities. At
December 31, 2000, we had outstanding Federal Home Loan Bank advances of $3.9
million and $1.7 million outstanding on our line of credit with the Federal Home
Loan Bank. At December 31, 2000, our total borrowing capacity with the Federal
Home Loan Bank was $26.4 million. Additionally, we have guaranteed a loan made
to our Employee Stock Ownership Plan, with an outstanding balance of $120,000 at
December 31, 2000, to fund the Employee Stock Ownership Plan's purchase of
shares in our 1993 common stock offering. Our total borrowings were $6.5 million
at December 31, 2000, which included $745,000 borrowed for the acquisition of
Freedom Bancshares, compared to $870,000 at December 31, 1999.
At December 31, 2000, we had outstanding loan commitments of $14.7 million.
We anticipate that sufficient funds will be available to meet current loan
commitments. These commitments consist of letters of credit, unfunded lines of
credit and commitments to finance real estate loans.
CAPITAL. The Federal Reserve Board has established capital requirements for bank
holding companies which generally parallel the capital requirements for national
banks under the Office of the Comptroller of the Currency regulations. The
regulations provide that such standards will generally be applied on a
consolidated (rather than a bank-only) basis in the case of a bank holding
company with more than $150 million in total consolidated assets.
At December 31, 2000, we continued to maintain a sound Tier 1 capital ratio
of 7.9% and a risk based capital ratio of 13.2%. As shown by the following
table, our capital exceeded the minimum capital requirements: (dollars in
thousands)
Amount Percent Required
------- ------ -------
Tier 1 leverage capital $11,614 7.9% 4.00%
Risk based capital $12,828 13.2% 8.00%
Banks and bank holding companies are generally expected to operate at or
above the minimum capital requirements. The above ratios are well in excess of
regulatory minimums and should allow us to operate without capital adequacy
concerns. The Federal Deposit Insurance Corporation Improvement Act of 1991
establishes a bank rating system based on the capital levels of banks. We are
rated "well capitalized", which is the highest rating available under this
capital-based rating system.
DIVIDENDS
During 2000, dividends of $.25 per share were paid to the stockholders and a
5% stock dividend was paid during August 2000. The cash and stock dividends are
consistent with those paid during 1999.
The payment of dividends by any financial institution or its holding company
is affected by the requirement to maintain adequate capital pursuant to
applicable capital adequacy guidelines and regulations. As described above,
Security National Bank exceeded its minimum capital requirements under
applicable guidelines as of December 31, 2000. The National Bank Act imposes
limitations on the amount of dividends that a national bank may pay without
prior regulatory approval. Generally, the amount is limited to the bank's
current year's net earnings plus the adjusted retained earnings for the two
preceding years. As of December 31, 2000, approximately $311,000 was available
to be paid as dividends to MNB Bancshares by Security National Bank without
prior regulatory approval.
RECENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities", in June 1998. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement, as amended by SFAS No. 138, is
effective for all fiscal quarters of fiscal beginning after December 15, 2000.
We believe adoption of SFAS Nos. 133 and 138 will not have a material effect on
our financial position or results of operations, nor will adoption require
additional capital resources.
EFFECTS OF INFLATION
Our financial statements and accompanying footnotes have been prepared in
accordance with GAAP (accounting principles generally accepted in the United
States of America), which generally requires the measurement of financial
position and operating results in terms of historical dollars without
consideration for changes in the relative purchasing power of money over time
due to inflation. The impact of inflation can be found in the increased cost of
our operations because our assets and liabilities are primarily monetary and
interest rates have a greater impact on our performance than do the effects of
inflation.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our assets and liabilities are principally financial in nature and the
resulting net interest income thereon is subject to changes in market interest
rates and the mix of various assets and liabilities. Interest rates in the
financial markets affect our decision on pricing our assets and liabilities
which impacts our net interest income, a significant cash flow source for us. As
a result, a substantial portion of our risk management activities relates to
managing interest rate risk.
Our Asset/Liability Management Committee monitors the interest rate
sensitivity of our balance sheet using earnings simulation models and interest
sensitivity GAP analysis. We have set policy limits of interest rate risk to be
assumed in the normal course of business and monitor such limits through our
simulation process.
We have been successful in meeting the interest rate sensitivity objectives
set forth in our policy. Simulation models are prepared to determine the impact
on net interest income for the coming twelve months, including one using rates
at December 31, 2000 and forecasting volumes for
the twelve month projection. This position is then subjected to a shift in
interest rates of 200 basis points rising and 200 basis points falling with
an impact to our net interest income on a one year horizon as follows:
$ change in net % of net
Scenario interest income int. income
- ---------------------- --------------- -----------
200 basis point rising $(316,000) (6.19%)
200 basis point falling $ 384,000 7.52%
We believe we are appropriately positioned for future interest rate
movements, although we may experience some fluctuations in net interest income
due to short term timing differences between the repricing of assets and
liabilities.
ASSET/LIABILITY MANAGEMENT
Since the mid 1980s, we have emphasized the origination of adjustable rate
mortgages for portfolio retention along with shorter-term consumer and
commercial loans to reduce the sensitivity of its earnings to interest rate
fluctuations. Interest rate "gap" analysis is a common, though imperfect,
measure of interest rate risk which measures the relative dollar amounts of
interest-earning assets and interest bearing liabilities which reprice within a
specific time period, either through maturity or rate adjustment. The "gap" is
the difference between the amounts of such assets and liabilities that are
subject to such repricing. A "positive" gap for a given period means that the
amount of interest-earning assets maturing or otherwise repricing within that
period exceeds the amount of interest-bearing liabilities maturing or otherwise
repricing during that same period. In a rising interest rate environment, an
institution with a positive gap would generally be expected, absent the effects
of other factors, to experience a greater increase in the yield of its assets
relative to the cost of its liabilities. Conversely, the cost of funds for an
institution with a positive gap would generally be expected to decline less
quickly than the yield on its assets in a falling interest rate environment.
Changes in interest rates generally have the opposite effect on an institution
with a "negative" gap.
Following is our "static gap" schedule. One-to-four family and consumer
loans included prepayment assumptions, while all other loans assume no
prepayments. The mortgage-backed securities included published prepayment
assumptions, while all other investments assume no prepayments. All assets are
reflected at amortized cost.
Certificates of deposit reflect contractual maturities only. Money market
accounts are rate sensitive and accordingly, a higher percentage of the accounts
have been included as repricing immediately in the first period. Savings and NOW
accounts are not as rate sensitive as money market accounts and for that reason
a significant percentage of the accounts are reflected in the 2 to 5 years
category.
We have been successful in meeting the interest sensitivity objectives set
forth in our policy. This has been accomplished primarily by managing the assets
and liabilities while maintaining our traditional high credit standards.
We believe we are appropriately positioned for future interest rate
movements, although we may experience some fluctuations in net interest income
due to short term timing differences between the repricing of assets and
liabilities.
INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES REPRICING SCHEDULE
("GAP" TABLE)
At December 31, 2000
--------------------
(dollars in thousands)
More More
3 months than 3 than 1
or less to 12 to 5 Over 5
months months years years Total
-------- ------ ------ ------ -----
Interest-earning assets:
Overnight investments $2,251 $ - $ - $ - $ 2,251
Investment securities 3,280 9,064 29,514 5,445 47,303
Loans 29,776 36,901 23,679 4,748 95,104
------ ------ ------ ----- ------
Total
interest-earning
assets $35,307 $45,965 $53,193 $10,193 $144,658
====== ====== ====== ====== =======
Interest-bearing
liabilities:
Certificates of
deposit $15,160 $36,602 $11,349 $ - $63,111
Money market deposit 6,847 - 5,695 - 12,542
Savings and NOW 21,475 - 22,336 - 43,811
Borrowed money 2,605 - 3,893 - 6,498
------ ------ ------ ---- ------
Total
interest-bearing
liabilities $46,087 $36,602 $43,273 $ - $125,962
====== ====== ====== ==== =======
Interest sensitivity gap
per period $(10,780) $9,363 $9,920 $10,193 $18,696
Cumulative interest
sensitivity gap $(10,780) $(1,417) $8,503 $18,696
Cumulative gap as a
percent of total
interest-earning assets (7.45%) (0.98%) 5.88% 12.92%
Cumulative interest
sensitive assets
as a percent of cumulative
interest sensitive liabilities 76.61% 98.29% 106.75% 114.84%
Safe Harbor Statement Under the Private Securities Litigation Reform Act of
1995.
This report contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. We intend such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Report Act of 1995, and is
including this statement for purposes of these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words "believe," "expect," "intend," "anticipate," "estimate," "project,"
or similar expressions. Our ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse effect on our operations and future prospects include, but are
not limited to, changes in: interest rates, general economic conditions,
legislative/regulatory changes, monetary and fiscal policies of the U.S.
Government, including policies of the U.S. Treasury and the Federal Reserve
Board, the quality or composition of the loan or investment portfolios, demand
for loan products, deposit flows, competition, demand for financial services in
our market area, our implementation of new technologies, our ability to develop
and maintain secure and reliable electronic systems and accounting principles,
policies and guidelines. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. Further information concerning the company and our business
including additional factors that could materially affect our financial results,
is included in our filings with the Securities and Exchange Commission.
Independent Auditors' Report
The Board of Directors
MNB Bancshares, Inc.:
We have audited the accompanying consolidated balance sheets of MNB
Bancshares, Inc. and subsidiaries (the Company) as of December 31, 2000 and
1999, and the related consolidated statements of earnings, stockholders'
equity and comprehensive income, and cash flows for each of the years in the
three-year period ended December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the
Company as of December 31, 2000 and 1999, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
February 2, 2001
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Consolidated Balance Sheets
December 31, 2000 and 1999
Assets 2000 1999
----------------- -----------------
Cash and cash equivalents:
Cash $ 1,582,255 2,952,527
Interest-bearing deposits in
other financial institutions 2,251,438 1,362,486
------------------ ----------------
Total cash and cash
equivalents 3,833,693 4,315,013
Investment securities:
Held-to-maturity 914,309 1,603,268
Available-for-sale 46,734,252 43,402,200
Loans, net 93,676,854 86,969,008
Loans held for sale 380,250 751,193
Premises and equipment, net of 2,253,729 2,288,028
Accrued interest and other assets 5,103,766 3,933,590
------------------ ----------------
Total assets $ 152,896,853 143,262,300
================== ================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest bearing demand $ 10,721,389 10,124,653
Money market and NOW 44,390,474 37,073,098
Savings 11,962,879 10,017,267
Time, $100,000 and greater 10,264,383 10,897,718
Time, other 52,846,935 44,223,593
------------------ ----------------
Total deposits 130,186,060 112,336,329
Federal Home Loan Bank
borrowings 5,632,870 15,655,010
Other borrowings 864,870 1,043,847
Accrued interest and expenses,
taxes, and other liabilities 1,537,127 936,730
------------------- ---------------
Total liabilities 138,220,927 129,971,916
------------------ ----------------
Stockholders' equity:
Common stock, $.01 par;
3,000,000 shares authorized;
1,534,828 and 1,449,303
shares issued and outstanding
at 2000 and 1999 15,348 14,493
Additional paid-in capital 9,634,291 9,011,899
Retained earnings 4,931,576 4,821,937
Unearned employee benefits (119,870) (173,847)
Accumulated other
comprehensive income (loss) 214,581 (384,098)
------------------ ----------------
Total stockholders' equity 14,675,926 13,290,384
Commitments and contingencies - -
------------------- ---------------
Total liabilities and
stockholders' equity $ 152,896,853 143,262,300
================== ================
See accompanying notes to consolidated financial statements.
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Consolidated Statements of Earnings
Years ended December 31, 2000, 1999, and 1998
2000 1999 1998
---------- ---------- -----------
Interest income:
Loans $ 8,197,519 6,846,202 7,326,727
Investment securities 2,633,427 2,691,003 2,714,558
Other 53,944 13,329 248,150
------------ ---------- ----------
Total interest income 10,884,890 9,550,534 10,289,435
------------ --------- ----------
Interest expense:
Deposits 5,264,385 4,285,924 5,035,706
Other borrowings 771,022 701,778 557,267
------------- --------- ----------
Total interest expense 6,035,407 4,987,702 5,592,973
------------ ---------- ----------
Net interest income 4,849,483 4,562,832 4,696,462
Provision for loan losses 85,000 15,000 90,000
----------- ---------- -----------
Net interest income after
provision for loan losses 4,764,483 4,547,832 4,606,462
----------- --------- ----------
Noninterest income:
Fees and service charges 1,100,427 805,616 735,459
Gains on sales of loans 94,551 141,501 384,427
Other 17,554 55,392 92,402
------------ --------- -----------
Total noninterest income 1,212,532 1,002,509 1,212,288
------------ ---------- ----------
Noninterest expense:
Compensation and benefits 2,190,673 2,083,502 2,043,450
Occupancy and equipment 685,613 597,807 632,727
Amortization 237,919 226,113 245,958
Professional fees 121,170 138,716 212,424
Data processing 136,390 131,479 139,714
Other 1,049,256 1,005,168 1,084,307
------------ ---------- ----------
Total noninterest expense 4,421,021 4,182,785 4,358,580
----------- ----------- ---------
Earnings before income taxes 1,555,994 1,367,556 1,460,170
Income taxes 476,059 463,317 478,142
----------- ---------- -----------
Net earnings $ 1,079,935 904,239 982,028
=========== ========== ===========
Earnings per share:
Basic $ 0.71 0.60 0.66
Diluted 0.70 0.58 0.63
=========== ========== ===========
See accompanying notes to consolidated financial statements.
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended December 31, 2000, 1999, and 1998
Accumulated
Additional Unearned other
Common paid-in Retained Treasury employee comprehensive
stock capital earnings stock benefits income (loss) Total
------- --------- -------- ------- --------- ------------- -----
Balance at December 31, $12,845 7,122,795 5,341,952 - (271,187) 69,444 12,275,849
------- --------- --------- ------- --------- ------ ----------
Comprehensive income:
Net earnings - - 982,028 - - - 982,028
Change in fair value of
securities
available-for-sale,
net of tax - - - - - 159,828 159,828
------- --------- -------- ------- --------- ------- ----------
Total comprehensive
income - - 982,028 - - 159,828 1,141,856
------- --------- -------- ------- --------- -------- ----------
Dividends paid ($.23 per
share) - - (333,891) - - - (333,891)
Reduction of unearned employee
benefits - - - - 48,836 - 48,836
Issuance of 18,672 shares under
stock compensation plans 187 108,836 - - - - 109,023
5% stock dividend (64,844
shares) 648 967,894 (968,542) - - - -
------- -------- --------- ------- -------- -------- -----------
Balance at December 31, 1998 13,680 8,199,525 5,021,547 - (222,351) 229,272 13,241,673
Comprehensive income:
Net earnings - - 904,239 - - - 904,239
Change in fair value of
securities
available-for-sale,
net of tax - - - - - (613,370) (613,370)
------- -------- -------- --------- --------- --------- -----------
Total comprehensive
income (loss) - - 904,239 - - (613,370) 290,869
------- -------- --------- ------- -------- --------- -----------
Dividends paid ($.24 per
share) - - (353,544) - - - (353,544)
Reduction of unearned employee
benefits - - - - 48,504 - 48,504
Issuance of 12,419 shares under
stock compensation plans 124 62,758 - - - - 62,882
5% stock dividend (68,908
shares) 689 749,616 (750,305) - - - -
------- -------- --------- ------- -------- --------- ----------
Balance at December 31, 1999 14,493 9,011,899 4,821,937 - (173,847) (384,098) 13,290,384
Comprehensive income:
Net earnings - - 1,079,935 - - - 1,079,935
Change in fair value of
securities
available-for-sale,
net of tax - - - - - 598,679 598,679
------- -------- ---------- ------ -------- -------- -----------
Total comprehensive
income - - 1,079,935 - - 598,679 1,678,614
------- -------- --------- ------ -------- -------- --------------
Dividends paid ($.25 per
share) - - (371,238) - - - (371,238)
Reduction of unearned employee
benefits - - - - 53,977 - 53,977
Issuance of 19,112 shares under
stock compensation plans 191 69,446 - - - - 69,637
Purchase of treasury shares
(5,681 shares) - - - (45,448) - - (45,448)
5% stock dividend (72,094
shares) 664 552,946 (599,058) 45,448 - - -
------- -------- --------- ------- -------- -------- --------------
Balance at December 31, 2000 $15,348 9,634,291 4,931,576 - (119,870) 214,581 14,675,926
======= ========= ======== ======= ========= ======= ==========
See accompanying notes to consolidated financial statements.
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999, and 1998
2000 1999 1998
-------------------------------------
Cash flows from operating activities:
Net earnings $ 1,079,935 904,239 982,028
Adjustments to reconcile net
earnings provided by operating
activities:
Provision for loan losses 85,000 15,000 90,000
Depreciation and amortization 549,538 509,395 561,196
Amortization of loan fees (13,706) (35,343) (55,232)
Deferred income taxes 26,600 47,400 (129,400)
Net (gain) loss on sales of investment
securities available-for-sale,
premises and equipment, and
other real estate 30,368 (7,147) (11,068)
Net gain on sales of loans (94,551) (141,501) (384,427)
Proceeds from sale of loans 8,674,665 12,397,598 33,323,344
Origination of loans for sale (8,209,171)(12,251,543) (32,950,902)
Accretion of discounts and
amortization of premiums on
investment securities, net 38,140 78,119 43,173
Changes in assets and
liabilities:
Accrued interest and other
assets (347,658) (81,103) 94,175
Accrued expenses, taxes, and
other liabilities 118,318 268,232 (121,929)
------------- ----------- -------------
Net cash provided by
operating activities 1,937,478 1,703,346 1,440,958
------------ ----------- -----------
Cash flows from investing activities:
Net (increase) decrease in loans (6,407,724)(12,756,422) 10,368,287
Maturities and prepayments of investment
securities held-to-maturity 684,328 552,959 4,344,489
Proceeds from sale of investment
securities held-to-maturity - 102,317 -
Proceeds from sale of branch - - 973,284
Maturities and prepayments of investment
securities available-for-sale 13,248,519 13,920,118 13,864,202
Purchases of investment
securities available-for-sale (17,959,385)(15,895,185) (27,114,772)
Proceeds from sale of investment
available-for-sale 2,280,547 5,904,906 560,024
Proceeds from sales of foreclosed
assets 29,636 50,000 142,879
Purchases of premises and equipment, net (273,973) (339,460) (260,359)
Improvements of other real estate (8,659) (4,600) -
Net cash received in branch
acquisitions 13,063,585 - -
------------ ------------ ------------
Net cash provided by (used
in) investing activities $ 4,656,874 (8,465,367) 2,878,034
------------ ----------- -----------
Cash flows from financing activities:
Net increase (decrease) in
deposits $ 3,418,517 (2,725,693) (4,396,004)
Net decrease in securities sold
under agreements to repurchase - - (549,615)
Federal Home Loan Bank borrowings
(repayments), net (10,022,140) 11,047,860 (821,427)
Repayments on note payable (125,000) (830,000) (1,150,000)
Issuance of common stock under stock
option plan 69,637 62,882 109,023
Payment of dividends (371,238) (353,544) (333,891)
Purchase of treasury stock (45,448) - -
------------- ------------ ------------
Net cash provided by (used
in) financing activities (7,075,672) 7,201,505 (7,141,914)
------------- ---------- --------------
Net increase (decrease) in
cash and cash equivalents (481,320) 439,484 (2,822,922)
Cash and cash equivalents at
beginning of year 4,315,013 3,875,529 6,698,451
------------- ----------- -------------
Cash and cash equivalents at end
of year $ 3,833,693 4,315,013 3,875,529
============= =========== =============
Supplemental disclosure of cash flow information:
Cash paid during the year for
income taxes $ 424,000 240,000 702,000
============ ============ =============
Cash paid during the year for
interest $ 5,957,000 4,978,000 5,623,000
============ ============ =============
Supplemental schedule of noncash
investing and
financing activities:
Transfer of loans to real
estate owned $ 369,000 105,000 39,000
Branch acquisitions:
Liabilities assumed 13,827,000 - -
Fair value of assets acquired 764,000 - -
============ =========== ==============
Branch sale:
Liabilities sold $ - - 2,769,000
Assets sold - - 3,742,000
============ =========== =============
See accompanying notes to consolidated financial statements.
MNB BANCSHARES, INC. AND SUBSIDIARIES
MANHATTAN, KANSAS
Notes to Consolidated Financial Statements
December 31, 2000, 1999, and 1998
(1) Summary of Significant Accounting Policies
(a)Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of MNB Bancshares, Inc. (the Company) and its wholly owned subsidiaries,
principally Security National Bank (the Bank). Intercompany balances and
transactions have been eliminated in consolidation.
(b)Investment Securities
The Company classifies its investment securities portfolio as
held-to-maturity, which are recorded at amortized cost, or
available-for-sale, which are recorded at fair value with unrealized
gains and losses excluded from earnings and reported in a separate
component of stockholders' equity until realized. Premiums and discounts
are amortized over the estimated lives of the securities using a method
which approximates the interest method. Gains and losses on sales are
calculated using the specific identification method.
(c)Loans and Related Earnings
Management determines at the time of origination whether loans will be
held for the portfolio or sold in the secondary market. Generally, fixed
rate mortgage loans are originated and underwritten for resale in the
secondary mortgage market. That decision depends on a number of factors,
including the yield on the loan and the term of the loan, market
conditions, and the current gap position.
Mortgage loans originated and intended for sale in the secondary market
are recorded at the lower of aggregate cost or estimated fair value.
Fees received on such loans are deferred and recognized in income as
part of the gain or loss on sale. Net unrealized losses are recognized
in a valuation allowance by charges to income. Fees received on other
loans in excess of amounts representing the estimated costs of
origination are deferred and credited to interest income using the
interest method.
Accrual of interest on nonperforming loans is suspended when, in the
opinion of management, the collection of such interest or the related
principal is less than probable. Any interest received on nonaccrual
loans is credited to principal.
(d)Allowance for Loan Losses
Provisions for losses on loans are based upon management's estimate of
the amount required to maintain an adequate allowance for losses,
relative to the risk in the loan portfolio. The estimate is based on
reviews of the loan portfolio, including assessment of the estimated net
realizable value of the related underlying collateral, and upon
consideration of past loss experience, current economic conditions, and
such other factors which, in the opinion of management, deserve current
recognition. Amounts are charged off as soon as probability of loss is
established, taking into consideration such factors as the borrower's
financial condition, underlying collateral, and guarantees. Loans are
also subject to periodic examination by regulatory agencies. Such
agencies may require charge-offs or additions to the allowance based
upon their judgments about information available at the time of their
examination.
(e)Stock in Federal Home Loan Bank and Federal Reserve Bank
The Bank is a member of the Federal Home Loan Bank (FHLB) and the
Federal Reserve Bank (FRB) systems. As a FHLB member, the Bank is
required to purchase and hold stock in the FHLB of Topeka in an amount
equal to the greater of (a) 1% of unpaid residential loans, (b) 5% of
outstanding FHLB advances, or (c) 0.3% of total assets. FHLB and FRB
stock are included in available-for-sale securities.
(f)Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided principally using the straight-line method over
the estimated useful lives, ranging from 3 to 31.5 years, of the assets.
Major replacements and betterments are capitalized while maintenance and
repairs are charged to expense when incurred. Gains or losses on
dispositions are reflected in current operations.
(g)Intangible Assets
The Company's core deposit intangible asset and goodwill is being
amortized over ten (accelerated) and fifteen (straight-line) years,
respectively. When facts and circumstances indicate potential
impairment, the Company evaluates the recoverability of asset carrying
values, including intangible assets, using estimates of undiscounted
future cash flows over remaining asset lives. When impairment is
indicated, any impairment loss is measured by the excess of carrying
values over fair values. No impairment losses have been recorded during
2000, 1999, or 1998.
Goodwill and core deposit amortization was $237,919, $226,113, and
$245,958 in 2000, 1999, and 1998, respectively. The remaining
unamortized balances of such assets at December 31, 2000 and 1999
aggregated $2,847,836 and $2,298,997, respectively.
(h)Income Taxes
The Company files a consolidated federal income tax return with its
subsidiaries, and records deferred tax assets and liabilities for the
future tax consequences attributable to differences between the
consolidated financial statement carrying amounts of existing assets and
liabilities and their respective income tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates applied to taxable
income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(i)Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with accounting principles generally
accepted in the United States of America. Actual results could differ
from those estimates.
(j)Comprehensive Income
The Company's only component of other comprehensive income is the
unrealized holding gains and losses on available-for-sale securities as
shown below:
For the years ended
December 31
-----------------------
2000 1999 1998
------- ------- ------
Unrealized holding gains (losses) $935,242 (982,160) 268,694
Less reclassification adjustment for gains
(losses)included in net income (30,368) 7,147 10,795
------- ------- ------
Net unrealized gains (losses) on
securities 965,610 (989,307) 257,899
Income tax expense (benefit) 366,931 (375,937) 98,071
------- ------- ------
Other comprehensive income $598,679 (613,370) 159,828
======= ======= ======
(k)Earnings Per Share
Basic earnings per share have been computed based upon the weighted
average number of common shares outstanding during each year. Diluted
earnings per share include the effect of all potential common shares
outstanding during each year. Earnings per share for all periods
presented have been adjusted to give effect to the 5% stock dividends
paid by the Company annually since 1994, and the two-for-one stock split
declared on January 21, 1998.
The shares used in the calculation of basic and diluted income per
share, which have been restated for the annual 5% stock dividends and
the 1998 stock split, are shown below:
For the years ended
December 31
------------------------------
2000 1999 1998
----- ----- -----
Weighted average common
shares outstanding 1,517,815 1,516,880 1,501,863
Stock options 35,950 41,972 58,109
------- ------- --------
1,553,765 1,558,852 1,559,972
========= ========= =========
(2) Acquisitions
On July 31, 2000, the Company acquired two branches from Commercial Federal
Savings Bank in Osage City and Wamego, Kansas. The Company acquired the
assets and assumed the liabilities of the branches, which consisted mainly
of deposit accounts. The Company received $13.1 million cash in the
transaction because the liabilities assumed exceeded the assets received.
The acquisition was accounted for as a purchase and resulted in goodwill of
approximately $787,000.
The Company sold a branch in Beloit, Kansas in 1998. The sale of the branch
included approximately $3.3 million of loans and $2.8 million of deposits.
A premium of approximately $120,000, net of tax, was received from the
buyer and offset against previously recorded goodwill.
(3) Investment Securities
A summary of investment securities information is as follows:
December 31, 2000
-----------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
----------- ----------- ----------- -----------
Held-to-maturity:
Municipal obligations $ 830,186 1,336 697 830,825
Mortgage-backed securities 84,123 958 -- 85,081
----------- ----------- ----------- -----------
Total $ 914,309 2,294 697 915,906
=========== =========== =========== ===========
Available-for-sale:
U. S. government and agency
obligations $16,328,869 252,065 12,994 16,567,940
Municipal obligations 12,567,754 158,727 20,049 12,706,432
Mortgage-backed securities 15,447,731 66,407 98,058 15,416,080
FHLB stock 1,136,100 -- -- 1,136,100
Other investments 907,700 -- -- 907,700
----------- ----------- ----------- -----------
Total $46,388,154 477,199 131,101 46,734,252
=========== =========== =========== ===========
December 31, 1999
-----------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
----------- ----------- ----------- -----------
Held-to-maturity:
Municipal obligations $ 1,506,837 1,503 3,952 1,504,388
Mortgage-backed securities 96,431 1,265 -- 97,696
----------- ----------- ----------- -----------
Total $ 1,603,268 2,768 3,952 1,602,084
=========== =========== =========== ===========
Available-for-sale:
U. S. government and agency
obligations $18,811,540 4,400 193,295 18,622,645
Municipal obligations 7,453,267 810 100,178 7,353,899
Mortgage-backed securities 16,323,006 1,396 332,646 15,991,756
FHLB stock 1,111,200 -- -- 1,111,200
Other investments 322,700 -- -- 322,700
----------- ----------- ----------- -----------
Total $44,021,713 6,606 626,119 43,402,200
=========== =========== =========== ===========
Maturities of investment securities at December 31, 2000 are as follows:
Amortized Estimated
cost fair value
----------- -----------
Held-to-maturity:
Due in less than one year $ 473,380 $ 473,181
Due after one year but within five years 356,806 357,644
Mortgage-backed securities 84,123 85,081
----------- -----------
Total $ 914,309 $ 915,906
=========== ===========
Available-for-sale:
Due in less than one year $ 5,068,555 $5,059,11
Due after one year but within five years 18,728,798 18,988,303
Due after five years 5,099,269 5,226,956
Mortgage-backed securities and other
investments 17,491,532 17,459,880
----------- -----------
Total $46,388,154 $46,734,252
=========== ===========
Except for U.S. government and agency obligations, no investment in a
single issuer exceeded 10% of stockholders' equity.
At December 31, 2000 and 1999, securities pledged to secure public funds on
deposit had a carrying value of approximately $32 million and $30 million,
respectively.
(4) Loans
Loans consist of the following at December 31:
2000 1999
------- ------
Real estate loans:
One-to-four family residential $28,539,735 27,125,681
Commercial 32,050,399 31,635,398
Commercial loans 24,326,775 20,482,825
Consumer loans 8,686,434 7,168,702
Student loans 1,500,635 1,876,948
--------- ----------
Total 95,103,978 88,289,554
Less:
Loans in process 77,672 5,159
Deferred loan fees 72,194 66,629
Allowance for loan losses 1,277,258 1,248,758
--------- ---------
Loans, net $93,676,854 86,969,008
========== ==========
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet customer financing needs. These
financial instruments consist principally of commitments to extend credit.
The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The
Company's exposure to credit loss in the event of nonperformance by the
other party is represented by the contractual amount of those instruments.
In the normal course of business, there are various commitments and
contingent liabilities, such as guarantees, commitments to extend credit,
letters of credit, and lines of credit, which are properly not recorded in
the accompanying consolidated financial statements. The Company generally
requires collateral or other security on unfunded loan commitments and
irrevocable letters of credit. Commitments to extend credit and lines of
credit aggregated approximately $14.7 million and $16.4 million at December
31, 2000 and 1999, respectively.
The Company is exposed to varying risks associated with concentrations of
credit relating primarily to lending activities in specific geographic
areas. The Company's principal lending area consists of the cities of
Manhattan, Auburn, Topeka, Wamego, and Osage City, Kansas and the
surrounding communities, and substantially all of the Company's loans are
to residents of or secured by properties located in its principal lending
area. Accordingly, the ultimate collectibility of the Company's loan
portfolio is dependent upon market conditions in those areas. These
geographic concentrations are considered in management's establishment of
the allowance for loan losses.
A summary of the activity in the allowance for loan losses is as follows:
2000 1999 1998
------- ------- --------
Balance at beginning of year $ 1,248,758 1,291,901 1,335,024
Provision 85,000 15,000 90,000
Charge-offs (72,310) (114,101) (170,977)
Recoveries 15,810 55,958 37,854
----------- ----------- -----------
Balance at end of year $ 1,277,258 1,248,758 1,291,901
=========== =========== ===========
At December 31, 2000 and 1999, impaired loans, including nonaccrual loans,
aggregated approximately $406,000 and $466,000, respectively.
The Bank serviced loans for others of $13.3 million and $15.2 million at
December 31, 2000 and 1999, respectively. Because the Bank sold
substantially all loans originated for sale on a servicing released basis,
no additional gains on sales or related mortgage servicing assets were
recorded during 2000, 1999, or 1998.
The Bank had loans to directors and officers at December 31, 2000, which
carry terms similar to those for other loans. A summary of such loans is as
follows:
Balance at beginning $1,756,916
New loans 354,422
Payments (169,357)
--------
Balance at end of year $ 1,941,981
=========
(5) Premises and Equipment
Premises and equipment consist of the following at December 31:
2000 1999
-------- --------
Land $ 353,412 353,412
Office buildings and improvements 2,175,737 2,131,167
Furniture and equipment 2,076,769 1,877,026
Automobiles 186,565 171,760
-------- --------
Total 4,792,483 4,533,365
Less accumulated depreciation 2,538,754 2,245,337
--------- ---------
Total $2,253,729 2,288,028
========= =========
The Company has multiyear operating lease agreements for several of its
branch locations. The Company's minimum lease commitments in future years
are:
Year ending
December 31, Amount
------------ ------
2001 $ 95,184
2002 95,184
2003 95,184
2004 95,184
2005 54,332
--------
Total $ 435,068
=========
Total rent expense for the years ended December 31, 2000, 1999, and 1998
was $85,797, $42,601, and $42,540, respectively.
(6) Time Deposits
Maturities of time deposits are as follows at December 31, 2000:
Year Amount
------ ---------
2001 $51,761,295
2002 6,811,066
2003 2,379,004
2004 1,859,066
2005 300,887
-----------
Total $63,111,318
===========
(7) Federal Home Loan Bank Advances
There were no short-term advances outstanding at December 31, 2000.
Short-term advances from the FHLB at December 31, 1999 were $7,440,000,
with rates ranging from 5.40% to 5.97%. Long-term advances from the FHLB at
December 31, 2000 and 1999 amount to $3,892,870 and $7,250,010,
respectively. Maturities of such advances at December 31, 2000 are
summarized as follows:
Year ending
December 31, Amount Rates
------------- ------- ------------
2002 $ 2,285,720 6.24% - 6.95%
2003 607,150 6.83% - 7.23%
2004 1,000,000 6.44%
-------
$ 3,892,870
=========
The Bank has a line of credit, renewable annually in September, with the
FHLB under which there were outstanding borrowings of $1,740,000 and
$965,000 at December 31, 2000 and 1999, respectively. Interest on any
outstanding balances on the line of credit accrues at the federal funds
rate plus .15% (6.90% at December 31, 2000).
Although no loans are specifically pledged, the FHLB requires the Bank to
maintain eligible collateral (qualifying loans and investment securities)
that has a lending value at least equal to its required collateral. At
December 31, 2000, the Bank's total borrowing capacity with the FHLB was
approximately $26.4 million.
(8) Other Borrowings
Other borrowings include a note payable relating to the Company's Employee
Stock Ownership Plan (the ESOP) (see note 10) with an unrelated financial
institution and a $2,500,000 line of credit with another unrelated
financial institution. The ESOP loan of $119,870 and $173,847 at December
31, 2000 and 1999, respectively, bears interest at the prime rate (9.50% at
December 31, 2000), is due in 2002, and is secured by the 21,923
unallocated shares of Company common stock held by the ESOP. The Company's
line of credit had outstanding balances of $745,000 and $870,000 at
December 31, 2000 and 1999, respectively, bears interest at the prime rate
less .5%, is due December 31, 2002, and is secured by all of the Bank stock
owned by the Company.
(9) Income Taxes
Total income tax expense for 2000, 1999, and 1998 is allocated as follows:
2000 1999 1998
-------- -------- --------
Operations $476,059 463,317 478,142
Stockholders' equity 366,931 (375,937) 98,071
-------- -------- --------
$842,990 87,380 576,213
======== ======== ========
The components of income tax expense allocated to earnings are as follows:
2000 1999 1998
-------- -------- --------
Current $449,459 415,917 607,542
Deferred 26,600 47,400 (129,400)
-------- -------- --------
$476,059 463,317 478,142
======== ======== ========
Federal $401,059 392,917 429,736
State 75,000 70,400 48,406
-------- -------- --------
$476,059 463,317 478,142
======== ======== ========
The reasons for the difference between actual income tax expense and
expected income tax expense allocated to earnings before extraordinary loss
at the 34% statutory federal income tax rate are as follows:
2000 1999 1998
--------- --------- ---------
Expected income tax expense at statutory rate $ 529,038 464,969 496,458
Tax-exempt interest (135,182) (108,974) (63,000)
Nondeductible amortization 40,182 40,182 59,565
State income taxes 49,500 46,464 31,947
Tax credit (28,700) (15,900) --
Other, net 21,221 36,576 (46,828)
--------- --------- ---------
$ 476,059 463,317 478,142
========= ========= =========
The tax effects of temporary differences that give rise to the significant
portions of the deferred tax assets and liabilities at December 31, 2000
and 1999 are as follows:
2000 1999
------- -------
Deferred tax assets:
Unrealized loss on investment securities
available-for-sale $ - 235,400
Allowance for loan losses 384,000 376,000
State taxes 800 -
Other 8,300 23,000
------- -------
Total deferred tax assets 393,100 634,400
------- -------
Deferred tax liabilities:
Unrealized gain on investment securities
available-for-sale 131,500 -
Core deposit intangible 32,000 47,000
FHLB stock dividends 255,000 255,000
Premises and equipment 27,000 15,500
State taxes - 4,000
Other 70,500 95,500
------- -------
Total deferred tax liabilities 516,000 417,000
------- -------
Net deferred tax asset(liability) $(122,900) 217,400
======= =======
A valuation allowance for deferred tax assets was not necessary at December
31, 2000 or 1999.
(10) Employee Benefit Plans
Qualified employees of the Company and the Bank may participate in an
employee stock ownership plan. The ESOP borrowed under a bank loan
agreement (note 8) with the proceeds used to acquire the Company's common
stock. At December 31, 2000, the ESOP held 112,703 shares of Company common
stock. Contributions, along with dividends on unallocated shares of common
stock, are used by the ESOP to make payments of principal and interest on
the bank loan. Because the Company has guaranteed the ESOP's borrowing, the
outstanding note payable balance is recorded as unearned compensation,
which is presented as a reduction of stockholders' equity in the
accompanying consolidated balance sheets. Unearned compensation is reduced
as the related note payable is reduced. ESOP contributions by the Bank
charged to compensation and benefits expense in 2000, 1999, and 1998 were
approximately $46,000, $45,000, and $55,000, respectively.
The Company has a stock option plan for directors and selected officers and
employees. The exercise price of options granted under the plan is at least
equal to the fair market value on the date of grant. The options vest over
varying periods of time and are exercisable for up to ten years.
Information with respect to option activity (as adjusted for stock
dividends and split) is as follows:
Number Weighted average
of exercise price
shares per share
------- --------------
Outstanding at December 31, 1997 86,200 $ 4.65
Effect of 5% stock dividend 3,635 -
Issued 4,071 13.13
Exercised (17,192) 5.20
-------
Outstanding at December 31, 1998 76,714 4.75
Effect of 5% stock dividend 3,223 -
Issued 250 13.00
Exercised (12,419) 5.06
-------
Outstanding at December 31, 1999 67,768 4.50
Effect of 5% stock dividend 4,854 -
Issued 29,400 8.38
Exercised (18,713) 3.55
-------
Outstanding at December 31, 2000 83,309 5.84
======= ========
Options exercisable at December 31, 2000 52,047 $ 4.34
======= ========
Options outstanding at December 31, 2000 were exercisable at prices ranging
from $3.55 to $11.90.
In accordance with Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation, the Company has chosen not to
apply the accounting provision of SFAS No. 123 in its consolidated
financial statements but rather to disclose pro forma amounts. The fair
value of the options granted in 1998, 1999, and 2000 were estimated
utilizing the following assumptions: dividend yields of 1.8%, 1.9%, and
1.9%; volatility of 17.2%, 17.2%, and 17.2%; risk-free interest rate of
6.5%, 7.0%, and 7.0%; and expected lives of five years, respectively. Pro
forma net earnings and diluted net earnings per share for 2000, applying
the disclosure provisions of SFAS No. 123, would have been approximately
$1,059,000 and $.68. Pro forma net earnings and earnings per share for 1999
and 1998, applying the disclosure provisions of SFAS No. 123, would be the
same as those amounts reflected in the accompanying consolidated statements
of earnings.
The Company has adopted an incentive program whereby bonuses are awarded if
certain annual profitability thresholds are achieved. The incentive program
also allows for discretionary bonuses. The Company recorded bonuses under
the incentive programs of approximately $7,000, $31,000, and $6,000 in
2000, 1999, and 1998, respectively. In 2000 and 1998, accrued bonuses
payable were used to purchase 399 shares and 1,480 shares of common stock
from the Company for $3,142 and $19,703, respectively.
(11) Fair Value of Financial Instruments
Fair value estimates of the Company's financial instruments as of December
31, 2000 and 1999, including methods and assumptions utilized, are set
forth below:
2000 1999
------------------- --------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
--------- --------- --------- ---------
Investment securities $ 47,648,561 47,650,000 45,005,468 45,004,000
=========== =========== ========== ==========
Loans, net of unearned fees
and allowance for loan
losses $ 93,676,854 92,474,000 86,969,008 83,182,000
=========== =========== ========== ==========
Noninterest bearing demand
deposits $ 10,721,389 10,721,000 10,124,653 10,125,000
Money market and NOW
deposits 44,390,474 44,390,000 37,073,098 37,073,000
Savings deposits 11,962,879 11,963,000 10,017,267 10,017,000
Time deposits 63,111,318 62,855,000 55,121,311 54,981,000
----------- ----------- ----------- -----------
Total deposits $130,186,060 129,929,000 112,336,329 112,196,000
=========== =========== =========== ===========
FHLB advances $ 5,632,870 5,687,000 15,655,010 15,456,000
=========== =========== =========== ===========
Other borrowings $ 864,870 865,000 1,043,847 1,044,000
=========== =========== =========== ===========
Methods and Assumptions Utilized
The carrying amount of cash and cash equivalents, loans held for sale,
federal funds sold, and accrued interest receivable and payable are
considered to approximate fair value.
The estimated fair value of investment securities, except certain
obligations of states and political subdivisions, is based on bid prices
published in financial newspapers or bid quotations received from
securities dealers. The fair value of certain obligations of states and
political subdivisions is not readily available through market sources
other than dealer quotations, so fair value estimates are based upon quoted
market prices of similar instruments, adjusted for differences between the
quoted instruments and the instruments being valued.
The estimated fair value of the Company's loan portfolio is based on the
segregation of loans by collateral type, interest terms, and maturities. In
estimating the fair value of each category of loans, the carrying amount of
the loan is reduced by an allocation of the allowance for loan losses. Such
allocation is based on management's loan classification system which is
designed to measure the credit risk inherent in each classification
category. The estimated fair value of performing variable rate loans is the
carrying value of such loans, reduced by an allocation of the allowance for
loan losses. The estimated fair value of performing fixed rate loans is
calculated by discounting scheduled cash flows through the estimated
maturity using estimated market discount rates that reflect the interest
rate risk inherent in the loan, reduced by an allocation of the allowance
for loan losses. The estimate of maturity is based on the Company's
historical experience with repayments for each loan classification,
modified, as required, by an estimate of the effect of current economic and
lending conditions. The fair value for significant nonperforming loans is
the estimated fair value of the underlying collateral based on recent
external appraisals or other available information, which generally
approximates carrying value, reduced by an allocation of the allowance for
loan losses.
The estimated fair value of deposits with no stated maturity, such as
noninterest bearing demand deposits, savings, money market accounts, and
NOW accounts, is equal to the amount payable on demand. The fair value of
interest-bearing time deposits is based on the discounted value of
contractual cash flows of such deposits. The discount rate is estimated
using the rates currently offered for deposits of similar remaining
maturities.
The carrying amounts of FHLB advances and other borrowings approximate fair
value because such borrowings have relatively short terms or adjustable
interest rates.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instruments. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists for
a significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding future loss experience, current
economic conditions, risk characteristics of various financial instruments,
and other factors. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly
affect the estimates. Fair value estimates are based on existing balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments.
(12) Regulatory Capital Requirements
Current regulatory capital regulations require financial institutions to
meet three different regulatory capital requirements. Institutions are
required to have minimum leverage capital equal to 4% of total average
assets, minimum Tier 1 risk-based capital equal to 4% of total
risk-weighted assets, and total qualifying capital equal to 8% of total
risk-weighted assets in order to be considered "adequately capitalized."
Management believes that, as of December 31, 2000, the Company and the Bank
meet all capital adequacy requirements to which they are subject. The
following is a comparison of the Company's regulatory capital to minimum
capital requirements at December 31, 2000 (dollars in thousands):
To be well-
For capital capitalized under
adequacy prompt corrective
Actual purposes action provisions
------------- -------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- ------- -----
As of December 31, 2000:
Total capital
(to risk-weighted assets) 12,828 13.21% $=> 7,771 => 8.00% $=> 9,714 => 10.00%
Tier 1 capital
(to risk-weighted assets) 11,614 11.96 => 3,885 => 4.00 => 5,828 => 6.00
Tier 1 capital
(to average assets) 11,614 7.90 => 5,883 => 4.00 => 7,354 => 5.00
======= ===== ======= ===== ======= =====
As of December 31, 1999:
Total capital
(to risk-weighted assets) 12,515 13.72% $=> 7,297 => 8.00% $=> 9,122 => 10.00%
Tier 1 capital
(to risk-weighted assets) 11,375 12.47 => 3,649 => 4.00 => 5,473 => 6.00
Tier 1 capital
(to average assets) 11,375 8.15 => 5,583 => 4.00 => 6,979 => 5.00
====== ===== ======== ===== ======= =====
(13) Parent Company Condensed Financial Statements
Following is condensed financial information of the Company as of and for
the years ended December 31, 2000 and 1999:
Condensed Balance Sheets
December 31, 2000 and 1999
Assets 2000 1999
--------- --------
Cash $ 8,014 25,293
Investment securities 17,500 17,500
Investment in subsidiary 15,532,720 14,310,313
---------- ----------
Total assets $ 15,558,234 14,353,106
========== ==========
Liabilities and Stockholders' Equity
Borrowed funds $ 864,870 1,043,847
Other 17,438 18,875
Stockholders' equity 14,675,926 13,290,384
----------- ----------
Total liabilities and stockholders' equity $ 15,558,234 14,353,106
=========== ==========
Condensed Statements of Earnings
Years ended December 31, 2000, 1999, and 1998
2000 1999 1998
----------- ----------- -----------
Dividends from subsidiary $ 552,298 1,111,352 1,357,335
Interest income 1,119 3,187 10,400
Interest expense (82,004) (86,048) (209,485)
Other expense, net (80,112) (102,180) (98,998)
----------- ----------- -----------
Income before equity in undistributed
earnings of subsidiary 391,301 926,311 1,059,252
Increase (decrease) in undistributed equity
of subsidiary 623,728 (89,243) (224,227)
----------- ----------- -----------
Earnings before income taxes 1,015,029 837,068 835,025
Income tax benefit 64,906 67,171 147,003
----------- ----------- -----------
Net earnings $ 1,079,935 904,239 982,028
=========== =========== ===========
Condensed Statements of Cash Flows
Years ended December 31, 2000, 1999, and 1998
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
Net earnings $ 1,079,935 904,239 982,028
(Increase) decrease in undistributed equity
of subsidiary (623,728) 89,243 224,227
Other (1,437) 75,371 (8,683)
----------- ----------- -----------
Net cash provided by operating activities 454,770 1,068,853 1,197,572
----------- ----------- -----------
Cash flows from investing activities:
Maturity of investment securities -- -- 150,000
Investment in subsidiary -- -- (25,589)
----------- ----------- -----------
Net cash provided by investing activities -- -- 124,411
----------- ----------- -----------
Cash flows from financing activities:
Issuance of shares under stock option plan 69,637 62,882 109,023
Repayments on note payable (125,000) (830,000) (1,150,000)
Purchase of treasury stock (45,448) -- --
Payment of dividends (371,238) (353,544) (333,891)
----------- ----------- -----------
Net cash used in financing activities (472,049) (1,120,662) (1,374,868)
----------- ----------- -----------
Net decrease in cash (17,279) (51,809) (52,885)
Cash at beginning of year 25,293 77,102 129,987
----------- ----------- -----------
Cash at end of year $ 8,014 25,293 77,102
=========== =========== ===========
Dividends paid by the Company are provided through subsidiary Bank
dividends. At December 31, 2000, the Bank could distribute dividends of up
to $311,000 without prior regulatory approvals.
CORPORATE INFORMATION
DIRECTORS OF MNB BANCSHARES, INC. AND SECURITY NATIONAL BANK
Brent A. Bowman, Chairman
President
Brent A. Bowman and
Associates Architects, P.A.
Patrick L. Alexander
President and Chief Executive Officer
MNB Bancshares, Inc. and Security National Bank
William F. Caton*
Broker, Senior Vice President
Chapman Securities, Inc.
Joseph L. Downey
Retired Senior Consultant, Director and Executive
Dow Chemical Company
Charles D. Green
Retired Attorney
Arthur-Green LLP
Vernon C. Larson
Retired Assistant Provost and
Director of International Programs
Kansas State University
Jerry R. Pettle
Retired Dentist
Dental Associates of Manhattan, P.A.
Susan E. Roepke
Retired Vice President, Secretary and Treasurer, MNB Bancshares, Inc.
Retired Senior Vice President/Secretary/Cashier, Security National Bank
Donald J. Wissman
Retired President, Grain Industry Alliance
*Bank Director only
EXCUTIVE OFFICERS OF MNB BANCSHARES, INC.
Patrick L. Alexander
President and Chief Executive Officer
Mark A. Herpich
Chief Financial Officer
Vice President, Secretary and Treasurer
EXECUTIVE OFFICERS OF SECURITY NATIONAL BANK
Patrick L. Alexander
President and Chief Executive Officer
Mark A. Herpich
Senior Vice President, Secretary and Cashier
Michael E. Scheopner
Executive Vice President, Credit Risk Manager
Dean R. Thibault
Executive Vice President
Dennis D. Wohler
Senior Vice President
STOCK PRICE INFORMATION
Our common stock trades on the Nasdaq Small-Cap Market tier of the Nasdaq
Stock Market under the symbol "MNBB". At December 31, 2000, we had approximately
440 stockholders of record. Set forth below are the reported high and low bid
prices of the common stock and dividends paid during the past two years.
Information presented below has been restated to give effect to the 5% stock
dividends paid in 2000 and 1999.
2000 High Low Dividends
First Quarter $8.63 $7.75 $0.0625
Second Quarter 8.25 7.63 0.0625
Third Quarter 9.00 7.56 0.0625
Fourth Quarter 9.75 7.88 0.0625
1999 High Low Dividends
First Quarter $12.50 $11.00 $0.0595
Second Quarter 12.38 8.75 0.0595
Third Quarter 10.50 9.06 0.0595
Fourth Quarter 9.50 8.25 0.0595
CORPORATE HEADQUARTERS
800 Poyntz Avenue
Manhattan, Kansas 66502
ANNUAL MEETING
The annual meeting of stockholders will be held at the Kansas State
University Student Union, Bluemont Room, Manhattan, Kansas 66506, on Wednesday,
May 23, 2001 at 2:00 PM.
FORM 10-K
A copy of the Annual Report on Form 10-K filed with the Securities and
Exchange Commission may be obtained by stockholders without charge on written
request to Patrick L. Alexander, President and Chief Executive Officer, MNB
Bancshares, Inc., PO Box 308, Manhattan, Kansas 66505-0308
REGISTRAR AND TRANSFER AGENT Registrar and Transfer Company 10 Commerce Drive
Cranford, NJ 07016-3572
INDEPENDENT ACCOUNTANTS
KPMG LLP
1000 Walnut, Suite 1600
Kansas City, Missouri 64199
EXHIBIT 21.1
SUBSIDIARIES OF MNB BANCSHARES, INC.
The only subsidiaries of the Company are Security National Bank, a
national banking association with its main office located in Manhattan, Kansas,
and with branch offices located in Auburn, Manhattan, Osage City, Topeka and
Wamego, Kansas and MNB Acquisition Corporation, Inc., a Kansas Corporation.
EXHIBIT 23.1
Independent Accountants' Consent
The Board of Directors
MNB Bancshares, Inc.:
We consent to incorporation by reference in the registration statement (No.
33-51710) on Form S-8 of MNB Bancshares, Inc. of our report, dated February
2, 2001, relating to the consolidated balance sheets of MNB Bancshares, Inc.
and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of earnings, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 2000, which report appears in the December 31, 2000 Annual
Report on Form 10-K of MNB Bancshares, Inc.
/s/ KPMG LLP
Kansas City, Missouri
March 16, 2001
EXHIBIT 99.1
MNB BANCSHARES, INC.
800 Poyntz Avenue
Manhattan, Kansas 66505
(785) 565-2000
April 20, 2001
Dear Stockholder:
On behalf of the board of directors and management of MNB Bancshares,
Inc., we cordially invite you to attend our annual meeting of stockholders, to
be held at 2:00 p.m. on Wednesday, May 23, 2001, at the Kansas State University
Student Union, 17th and Anderson Avenue, Manhattan, Kansas. The accompanying
notice of annual meeting of stockholders and proxy statement discuss the
business to be conducted at the meeting. At the meeting we shall report on our
operations and the outlook for the year ahead.
Your board of directors has nominated three persons to serve as Class III
directors, each of whom are incumbent directors. Your board of directors has
selected and recommends that you ratify the appointment of KPMG LLP to continue
as our independent public accountants for the year ending December 31, 2001.
We recommend that you vote your shares for the director nominees and in
favor of the proposal.
We encourage you to attend the meeting in person. Whether or
not you plan to attend, however, please complete, sign and date the enclosed
proxy and return it in the accompanying postpaid return envelope as promptly
as possible. This will ensure that your shares are represented at the meeting.
We look forward with pleasure to seeing and visiting with you at the
meeting.
Very truly yours,
MNB BANCSHARES, INC.
Patrick L. Alexander
President and Chief Executive Officer
800 Poyntz Avenue
Manhattan, Kansas 66505
(785) 565-2000
NOTICE OF
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 23, 2001
To the stockholders of
MNB BANCSHARES, INC.
The annual meeting of the stockholders of MNB Bancshares, Inc., a Delaware
corporation, will be held at the Kansas State University Student Union, 17th and
Anderson Avenue, Manhattan, Kansas, 66506, on Wednesday, May 23, 2001, at 2:00
p.m., local time, for the following purposes:
1. to elect three Class III directors for a term of three years.
2. to approve the appointment of KPMG LLP as our independent
public accountants for the fiscal year ending December 31,
2001.
3. to transact such other business as may properly be brought
before the meeting and any adjournments or postponements
of the meeting.
The board of directors has fixed the close of business on April 6, 2001,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the meeting. In the event there are not sufficient votes for a
quorum or to approve or ratify any of the foregoing proposals at the time of the
meeting, the meeting may be adjourned or postponed in order to permit further
solicitation of proxies.
By order of the Board of Directors
Patrick L. Alexander
President and Chief
Executive Officer
Manhattan, Kansas
April 20, 2001
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation by
the board of directors of MNB Bancshares, Inc. of proxies to be voted at the
annual meeting of stockholders to be held at the Kansas State University Student
Union, 17th and Anderson Avenue, Manhattan, Kansas, 66506, on Wednesday, May 23,
2001, at 2:00 p.m., local time, and at any adjournments or postponements of the
meeting.
The board of directors would like to have all stockholders represented at
the meeting. If you do not expect to be present, please sign and return your
proxy card in the enclosed self-addressed, stamped envelope. You may revoke your
proxy at any time before it is voted, by:
- - giving written notice to the corporate secretary of MNB Bancshares,
provided such written notice is received prior to the annual meeting or
any adjournments or postponements of the meeting;
- - submitting a later dated proxy; or
- - by attending the annual meeting and choosing to vote in
person.
The giving of a proxy will not affect your right to vote in person if you attend
the meeting.
Our principal executive office is located at 800 Poyntz Avenue, Manhattan,
Kansas and its mailing address is P.O. Box 308, Manhattan, Kansas 66505. This
proxy statement and the accompanying proxy card are being mailed to stockholders
on or about April 20, 2001. Our 2000 annual report, which includes consolidated
financial statements of MNB Bancshares and our subsidiary, is enclosed.
We are the holding company for Security National Bank, Manhattan, Kansas.
In addition to its main office in Manhattan, Security National Bank also has
branch offices in Auburn, Manhattan, Osage City, Topeka and Wamego.
Only holders of record of our common stock at the close of
business on April 6, 2001, will be entitled to vote at the annual meeting or
any adjournments or postponements of the meeting. On April 6, 2001, we had
1,563,905 shares of common stock, par value $0.01 per share, issued and
outstanding. In the election of directors, and for all other matters to be
voted upon at the annual meeting, each issued and outstanding share is
entitled to one vote.
All shares of common stock represented at the annual meeting by properly
executed proxies received prior to or at the annual meeting, and not revoked,
will be voted at the annual meeting in accordance with the instructions thereon.
If no instructions are indicated, properly executed proxies will be voted for
the nominees and for adoption of the proposal set forth in this proxy statement.
A majority of the shares of the common stock, present in person or
represented by proxy, shall constitute a quorum for purposes of the annual
meeting. Abstentions and broker non-votes will be counted for purposes of
determining a quorum. Directors shall be elected by a plurality of the votes
present in person or represented by proxy at the meeting and entitled to vote.
In all other matters, the affirmative vote of a majority of shares required to
constitute a quorum and voting on the subject matter shall be required to
constitute stockholder approval. Abstentions will be counted as votes against a
proposal and broker non-votes will have no effect on the vote.
ELECTION OF DIRECTORS
At the annual meeting of the stockholders to be held on May 23, 2001, the
stockholders will be entitled to elect three Class III directors for a term
expiring in 2004. The directors are divided into three classes having staggered
terms of three years. The nominees for election as Class III directors are
incumbent directors. We have no knowledge that any of the nominees will refuse
or be unable to serve, but if any of the nominees becomes unavailable for
election, the holders of the proxies reserve the right to substitute another
person of their choice as a nominee when voting at the meeting.
Set forth below is information concerning the nominees for election and
for the other persons whose terms of office will continue after the meeting,
including the age, year first elected a director and business experience during
the previous five years as of April 6, 2001. The nominees, if elected at the
annual meeting of stockholders, will serve as Class III directors for three year
terms expiring in 2004. We unanimously recommend that you vote FOR each of the
nominees for director.
NOMINEES
Position with MNB Bancshares Director
Name Age and Security National Bank Since
- ----- --- ---------------------------- --------
CLASS III
(Term Expires 2004)
Brent A. Bowman 51 Chairman of the Board of MNB
Bancshares and Security National Bank 1987
Charles D. Green 75 Director of MNB Bancshares and
Security National Bank 1957
Vernon C. Larson 78 Director of MNB Bancshares and
Security National Bank 1974
CONTINUING DIRECTORS
Position with MNB Bancshares Director
Name Age and Security National Bank Since
- ----- --- ---------------------------- --------
CLASS I
(Term Expires 2002)
Patrick L. 48 President, Chief Executive Officer
and Director MNB Bancshares and
Security National Bank 1990
Joseph L. Downey 64 Director of MNB Bancshares and
Security National Bank 1996
Jerry R. Pettle 62 Director of MNB Bancshares and
Security National Bank 1978
CLASS II
(Term Expires 2003)
Susan E. Roepke 61 Director of MNB Bancshares and
Security National Bank 1997
Donald J. Wissman 63 Director of MNB Bancshares and
Security National Bank 1994
All of our directors will hold office for the terms indicated, or until
their earlier death, resignation, removal or disqualification, and until their
respective successors are duly elected and qualified, and all executive officers
hold office for a term of one year. There are no arrangements or understandings
between any of the directors, executive officers or any other person pursuant to
which any of our directors or executive officers have been selected for their
respective positions, except that MNB Bancshares and Security National Bank have
entered into an employment contract with Mr. Alexander. No director is related
to any other director or executive officer of MNB Bancshares or its subsidiary
by blood, marriage or adoption.
The business experience of each nominee and continuing director for the
past five years is as follows:
Patrick L. Alexander became president and chief executive officer of the
Manhattan Federal Savings and Loan Association (the
predecessor-in-interest to Security National Bank) in 1990, and became the
president and chief executive officer of MNB Bancshares and Security National
Bank in 1992 and 1993, respectively. From 1986 to 1990, Mr. Alexander served
as president of the Kansas State Bank of Manhattan, Manhattan, Kansas. Mr.
Alexander serves as a member of the board of directors of the Big Lakes
Foundation, Inc. and serves on the economic development committee of the
Manhattan Chamber of Commerce.
Brent A. Bowman has been president of Brent Bowman and
Associates Architects, P.A., an architectural firm in Manhattan,
Kansas, since 1979. He serves on the Big Lakes Developmental Center
Board.
Joseph L. Downey served as a director of Dow Chemical Co. for ten years
until his retirement from the board in 1999. He was a Dow Senior Consultant from
1995 until 1999, after having served in a variety of executive positions with
that company, including senior vice president from 1991 to 1994.
Charles D. Green is a former partner in the Manhattan, Kansas
law firm of Arthur-Green LLP from 1950 to 1993. Mr. Green formerly
served as a director of the Commerce Bank, N.A., a wholly-owned
subsidiary of CBI-Central Kansas, Inc., which is a wholly owned
subsidiary of Commerce Bancshares, Inc., Kansas City, Missouri.
Vernon C. Larson was the assistant provost and director of International
Programs at Kansas State University, Manhattan, Kansas from 1962 until his
retirement in 1991.
Jerry R. Pettle is a dentist who practiced with Dental
Associates of Manhattan, P.A., in Manhattan, Kansas, from 1965 until
his retirement in 1999. Dr. Pettle is a member of the Manhattan
Medical Center board of directors and is an examiner for the Kansas
Dental Board.
Susan E. Roepke is a former vice president of MNB Bancshares, serving in
that capacity from its inception in 1992 until she retired as an officer of MNB
Bancshares and Security National Bank at the end of 1998. She also served in a
number of senior management positions with Security National Bank since 1970,
including senior vice president, secretary and cashier since 1993.
Donald J. Wissman is the former chairman of DPRA Incorporated, an
environmental/economic research and consulting firm headquartered in Manhattan,
Kansas. He served in that capacity from 1987 to 1998. Dr. Wissman began his
service with the firm in 1965 and served as vice president and senior vice
president involved in economic and environmental regulatory consulting
assignments. He is the founder and served as president of the Grain Industry
Alliance from 1996-1998. He served as chairman and director of the Manhattan
Chamber of Commerce and on the board of directors of the Kansas State University
Research Foundation.
Board Committees and Meetings
Presently, there are two committees of the board of directors: a stock
option committee, which administers our stock option plan, and an audit
committee. The full board of directors considers nominations to the board, and
will consider nominations made by stockholders if such nominations are in
writing and otherwise comply with our bylaws. The board of directors of Security
National Bank has an executive committee and a directors' loan committee.
The executive committee consists of directors Bowman (Chairman),
Alexander, Roepke, Wissman and Mr. William F. Caton, a director of Security
National Bank. The executive committee has authority to perform policy reviews,
oversee and direct compensation and personnel functions, monitor marketing and
CRA activities, review and approve the budget and asset/liability position and
undertake other organizational issues and planning discussions as deemed
appropriate. The committee meets monthly on a regularly scheduled basis and more
frequently if necessary. During 2000 the committee met eleven times.
The director' loan committee consists of directors Green (Chairman),
Alexander, Downey, Larson and Pettle. The directors' loan committee is
responsible for policy review and oversight of the loan and investment
functions. It has the authority to approve loans in excess of the officers' loan
committee lending authority up to legal lending limits, subject to certain
exceptions which apply to certain levels of unsecured and insider loans which
must be approved by the entire board of directors. The committee reviews the
allowance for loan losses for adequacy and reviews in detail lending and
investment activities. The committee meets monthly on a regularly scheduled
basis and more frequently if necessary. During 2000 the committee met twelve
times.
The audit committee consists of directors Pettle (Chairman), Bowman,
Larson, Wissman and Mr. Caton, a director of Security National Bank. The audit
committee is responsible for overseeing the internal and external audit
functions. It approves internal audit staffing, salaries and programs. The
internal auditor reports directly to the committee on audit and compliance
matters. The committee also reviews and approves the scope of the annual
external audit and consults with the independent auditors regarding the results
of their auditing procedures. The committee normally meets quarterly. During
2000 the committee met four times. A copy of the audit committee charter is
attached to this proxy statement as Exhibit A.
The stock option committee consists of directors Bowman (Chairman),
Alexander, Roepke, Wissman and Mr. Caton, a director of Security National Bank.
The stock option committee administers the stock option plan and has the
authority, among other things, to select the employees to whom options will be
granted, to determine the terms of each option, to interpret the provisions of
the stock option plan and to make all determinations that it may deem necessary
or advisable for the administration of the stock option plan. During 2000 the
committee met twice. Mr. Alexander did not participate in any discussions
pertaining to his option grants.
A total of twelve regularly scheduled and special meetings were held by
the board of directors of MNB Bancshares during 2000. During 2000, all directors
attended at least 75 percent of the meetings of the board and the committees on
which they serve.
Directors receive no fees for attendance at regularly scheduled meetings
of the board of directors and they receive $100 for attendance at special
meetings. Directors of Security National Bank receive fees of $400 per month
plus $100 per meeting for attendance at regularly scheduled meetings of the
board of directors and $100 per month for attendance at regularly scheduled
meetings of committees, except that Mr. Alexander does not receive additional
amounts for attendance at committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
paid or granted to our chief executive officer for the past three fiscal years.
None of the remaining executive officers of MNB Bancshares or Security National
Bank had an aggregate salary and bonus which exceeded $100,000.
===============================================================================
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------
Long Term
Annual Compensation
Compensation Awards
- -------------------------------------------------------------------------------
(a) (b) (c) (d) (g) (i)
Securities All Other
Name and Year Ended Underlying Compensation
Principal December Salary($) Bonus($) Options/SARs(#) ($)(2)
Position 31st
=============================================================================
Patrick L. 2000 $ 161,442 --- --- $9,000
Alexander 1999 155,313 $5,000 --- 8,590
President and 1998 145,315 --- --- 8,516
Chief Executive
Officer
- -------------------------------------------------------------------------------
- ----------------------------
(1) Includes amounts deferred.
(2) Represents contributions made to our employee stock ownership
plan. The contribution to the employee stock ownership plan is expected to
be approximately $9,000 for 2000.
The following table sets forth certain information concerning the number
and value of stock options at December 31, 2000 held by the chief executive
officer.
==========================================================================================
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
- ------------------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End ($)
(d) (e)
------------------------------------------------------
Shares Value
Name Acquired Realized
(a) on ($) Exercisable Unexercisable Exercisable Unexercisable
Exercise (c)
(#)
(b)
==========================================================================================
Patrick L. --- --- 29,077(1) --- $180,178 $---
Alexander
==========================================================================================
- ----------------------------
(1) Includes options resulting from stock dividends paid by MNB
Bancshares. Mr. Alexander exercised these reported options in
February, 2001.
Employment Agreement
In January, 1993, MNB Bancshares and Security National Bank entered into
an employment agreement with Patrick L. Alexander. The employment agreement
initially provided for an initial base salary of $94,605, which may be increased
but not decreased, and an initial term of three years, with one year extensions
thereafter unless the agreement has been terminated by us or Mr. Alexander. The
term of the agreement will be extended three additional years upon any change in
control of MNB Bancshares or Security National Bank, as defined in the
agreement. The employment agreement will terminate
upon the death or disability of Mr. Alexander, in the event of certain
regulatory actions or upon notice by either us or Mr. Alexander, with or
without cause. The employment agreement will be suspended in the event of a
regulatory suspension of Mr. Alexander's employment. In the event of
termination of Mr. Alexander's employment due to disability or without cause,
we will be obligated to pay or to provide to him, as applicable, continued
salary and benefits until the earlier of the expiration of the term of the
agreement or his death. In the event Mr. Alexander's employment discontinues
following a change in control of MNB Bancshares or Security National Bank,
the successor to is obligated to make a lump sum payment to him equal to
three times his then annual salary and to continue benefits until the earlier
of three years or his death. For purposes of the employment agreement, Mr.
Alexander's employment will be considered terminated following a change in
control in the event his right to retain his position with Security National
Bank or to exercise fully the authority, duties and responsibilities of such
position is changed or terminated. The employment agreement includes a
covenant which will limit the ability of Mr. Alexander to compete with
Security National Bank in an area encompassing a fifty mile radius from the
main office for a period of one year following the termination of his
employment with Security National Bank. The geographic area covered by this
provision constitutes a portion of Security National Bank's primary service
area.
Executive Committee Report on Executive Compensation
The executive committee has furnished the following report on executive
compensation. The incorporation by reference of this proxy statement into any
document filed with the Securities and Exchange Commission by MNB Bancshares
shall not be deemed to include the report unless the report is specifically
stated to be incorporated by reference into such document.
The executive committee of the board of directors of Security National
Bank is comprised of five directors and is responsible for recommendations to
the board of directors of MNB Bancshares for compensation of executive officers
of Security National Bank and MNB Bancshares. At this time no separate salary is
paid to the officers of MNB Bancshares. In determining compensation, the
following factors are generally taken into consideration:
o the performance of the executive officers in achieving the
short and long term goals of MNB Bancshares;
o payment of compensation commensurate with the ability and
expertise of the executive officers; and
o we attempt to structure compensation packages so that they are
competitive with similar companies.
The committee considers the foregoing factors, as well as others, in determining
compensation. There is no assigned weight given to any of these factors.
Additionally, the executive committee considers various
benefits, such as the employee stock ownership plan and the stock option
plan, together with perquisites in determining compensation. The committee
believes that the benefits provided through the stock based plans more
closely tie the compensation of the officers to the interests of the
stockholders and provide significant additional performance incentives for
the officers which directly benefit the stockholders through an increase in
the stock value.
The executive committee felt it would be beneficial to shareholders to
have executive officers take a portion of incentive pay in the form of shares of
our stock. As a result of this thought process, the committee changed the
incentive program, beginning in 1999, to enable officers to have the ability to
take a portion or all of their after-tax incentive compensation in the form of
our common stock.
Annually, the executive committee evaluates four primary areas of
performance in determining Mr. Alexander's level of compensation. These areas
are:
o long-range strategic planning and implementation;
o our financial performance;
o our compliance with regulatory requirements and relations with
regulatory agencies; and
o effectiveness of managing relationships with stockholders and
the board of directors.
When evaluating our financial performance, the committee considers
profitability, asset growth and risk management. The primary evaluation criteria
are considered to be essential to the long-term viability and are generally
given equal weight in the evaluation. Finally, the committee reviews
compensation packages of peer institutions to ensure that Mr. Alexander's
compensation is competitive and commensurate with his level of performance.
The 2000 compensation of Mr. Alexander was based upon the
factors described above and his substantial experience and length of
service with the organization. During 2000, Mr. Alexander
successfully headed our acquisition program, which included
planning, analysis, and contacting a number of financial
institutions. Mr. Alexander did not participate in any decisions
pertaining to his compensation.
Members of the executive committee are:
Brent A. Bowman, Chairman
Patrick L. Alexander
William F. Caton
Susan E. Roepke
Donald J. Wissman
Performance Graph
The incorporation by reference of this proxy statement into any document
filed with the Securities and Exchange Commission by MNB Bancshares shall not be
deemed to include the following performance graph and related information unless
the graph and related information are specifically stated to be incorporated by
reference into the document.
The following graph shows a five year comparison of cumulative total
returns for MNB Bancshares, The Nasdaq Stock Market (U.S. Companies) and the
Nasdaq Bank Stocks Index. The graph assumes that $100 was invested in our common
stock and in each index on December 31, 1994. This graph was prepared, at our
request, by Research Data Group, Inc., San Francisco, California.
COMPARISON OF CUMULATIVE TOTAL RETURN*
ASSUMES $100 INVESTED ON DECEMBER 31, 1994
[To be inserted]
- ------------------------------------------------------------------------------------
12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00
- ------------------------------------------------------------------------------------
MNB Bancshares, Inc. $100 $ $ $ $ $
Nasdaq Market - U.S. $100 $ $ $ $ $
Nasdaq Bank Stock $100 $ $ $ $ $
- ------------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding our common
stock beneficially owned on March 15, 2001 with respect to all persons known to
us to be the beneficial owner of more than five percent of our common stock,
each director and nominee, each executive officer named in the summary
compensation table above and all directors and executive officers of as a group.
Name of Individual and Amount and Nature Percent
Number of Persons in of of Class
Group Beneficial
Ownership(1)
- ----------------------- ----------------- --------
5% Stockholders
First Manhattan Co. 102,643(2) 6.56%
437 Madison Avenue
New York, New York 10022
MNB Bancshares, Inc. 112,703(3) 7.21%
Employee Stock Ownership Plan
800 Poyntz Avenue
Manhattan, Kansas 66505
Jack Goldstein 107,339(4) 6.86%
555 Poyntz Avenue
Manhattan, Kansas 66502
Patrick L. Alexander 123,688(5) 7.88%
2801 Brad Lane
Manhattan, Kansas 66502
Rolla Goodyear 127,653(6) 8.16%
4009 Saltburn Drive
Plano, Texas 75093
Susan E. Roepke 119,712(7) 7.65%
PMB 351 1228 Westloop
Manhattan, Kansas 66502-2840
Other Directors
Brent A. Bowman 5,744 *
Joseph L. Downey 14,693(8) *
Charles D. Green 31,072(9) 1.98%
Vernon C. Larson 10,491(10) *
Jerry R. Pettle 17,002(11) 1.09%
Donald J. Wissman 5,371(12) *
All directors and executive
officers as a group 413,749(13) 25.78%
(12 persons)
- ------------------------------------
*Less than 1%
(1) The information contained in this column is based upon information
furnished to us by the persons named above and the members of the
designated group. The nature of beneficial ownership for shares shown in
this column is sole voting and investment power, except as set forth in
the footnotes below. Inclusion of shares in this table shall not be
deemed to be an admission of beneficial ownership of such shares.
Amounts shown include shares issued pursuant to a stock dividend paid by
us in August, 2000. Amounts shown reflect the 2 for 1 stock split
effected in February, 1998.
(2) Pursuant to an Amendment dated February 7, 2001, to a Schedule 13G/A
filed by First Manhattan Co.
(3) Includes 90,780 shares which have been allocated to participants'
accounts under our employee stock ownership plan.
(4) Pursuant to a Schedule 13D dated August 31, 2000.
(5) Includes 5,211 shares held in an individual retirement account of which
the power to vote such shares is shared with the individual retirement
account administrator and 46,004 shares over which voting and
investment power is shared with his spouse.
(6) Includes 2,462 shares held by Mr. Goodyear's spouse, over which shares
Mr. Goodyear has no voting or investment power.
(7) Ms. Roepke is a retired vice president and the chief financial officer
of MNB Bancshares. She currently is a member of the board of directors.
This includes 22,681 shares held in an individual retirement account,
of which the power to vote such shares is shared with the individual
retirement account administrator, 3,504 shares held in her spouse's
individual retirement account and over which Ms. Roepke has shared
voting and investment power, 49,063 shares held in a living trust of
which Ms. Roepke is a co-trustee and over which Ms. Roepke has shared
voting and investment power and 31,832 shares held in her spouse's
living trust and over which Ms. Roepke has shared voting and investment
power.
(8) Represents 14,693 shares held jointly with his spouse and over which
Mr. Downey has shared voting and investment power.
(9) Includes 2,934 shares presently obtainable through the exercise of
options granted under our stock option plan, over which shares Mr.
Green has no voting and sole investment power.
(10) Represents 10,491 shares held jointly with his spouse and over which
Mr. Larson has shared voting and investment power.
(11) Includes 7,031 shares held in Dental Associates Profit Sharing Plan and
over which Mr. Pettle has full voting and investment power.
(12) Includes 1,689 shares held by his spouse and over which Mr. Wissman has
shared voting and investment power.
(13) Includes an aggregate of 41,015 shares presently obtainable through the
exercise of options granted under our stock option plan.
Section 16(a) of the Securities Exchange Act of 1934 requires that our
executive officers, directors and persons who own more than 10% of our common
stock file reports of ownership and changes in ownership with the Securities and
Exchange Commission and with the exchange on which our shares of common stock
are traded. These persons are also required to furnish us with copies of all
Section 16(a) forms they file. Based solely on our review of the copies of these
forms, we are not aware that any of our directors, executive officers or 10%
stockholders failed to comply with the filing requirements of Section 16(a)
during 2000.
TRANSACTIONS WITH MANAGEMENT
Our directors and officers and their associates were customers of and
had transactions with MNB Bancshares and Security National Bank during 2000.
Additional transactions are expected to take place in the future. All out-
standing loans, commitments to loan, and certificates of deposit and depository
relationships, in the opinion of management, were made in the ordinary course of
business, on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risk of collectibility or
present other unfavorable features.
AUDIT COMMITTEE REPORT
The incorporation by reference of this proxy statement into any
document filed with the Securities and Exchange Commission by MNB Bancshares
shall not be deemed to include the following report unless the report is
specifically stated to be incorporated by reference into such document.
The audit committee assists the board in carrying out its oversight
responsibilities for our financial reporting process, audit process and internal
controls. The audit committee also reviews the audited financial statements and
recommends to the board that they be included in our annual report on Form 10-K.
The committee is comprised solely of independent directors.
The audit committee has reviewed and discussed our audited financial
statements for the fiscal year ended December 31, 2000 with our management and
KPMG LLP, our independent auditors. The committee has also discussed with KPMG
LLP the matters required to be discussed by SAS 61 (Codification for Statements
on Auditing Standards) as well as having received and discussed the written
disclosures and the letter from KPMG LLP required by Independence Standards
Board Statement No. 1 (Independence Discussions with Audit Committees). Based on
the review and discussions with management and KPMG LLP, the committee has
recommended to the board that the audited financial statements be included in
our annual report on Form 10-K for the fiscal year ended December 31, 2000 for
filing with the Securities and Exchange Commission.
Jerry R. Pettle, Chairman
Brent A. Bowman
William F. Caton
Vernon C. Larson
Donald J. Wissman
INDEPENDENT PUBLIC ACCOUNTANTS
Stockholders will be asked to approve the appointment of KPMG LLP as
our independent public accountants for the year ending December 31, 2001. A
proposal will be presented at the annual meeting to ratify the appointment of
KPMG LLP. If the appointment of KPMG LLP is not ratified, the matter of the
appointment of independent public accountants will be considered by the board of
directors. Representatives of KPMG LLP are expected to be present at the meeting
and will be given the opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions.
We unanimously recommend that you vote FOR this appointment.
Audit Fees
Our independent auditor during 2000 was KPMG LLP. The aggregate fees
and expenses billed by KPMG LLP in connection with the audit of our annual
financial statements as of and for the year ended December 31, 2000 and for the
required review of our financial information included in our Form 10-Q filings
for the year 2000 was $45,500.
Financial Information Systems Design and Implementation Fees
There were no fees incurred for these services for the year 2000.
All Other Fees
The aggregate fees and expenses billed by KPMG LLP for all other
services rendered to us for 2000 was $18,555.
The audit committee, after consideration of the matter, does not
believe that the rendering of these services by KPMG LLP to be incompatible with
maintaining its independence as the our principal accountant.
SUBMISSION OF STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have included in our proxy
materials relating to the next annual meeting of stockholders, which is
scheduled to be held in May 2002, must be received at our principal executive
offices located at 800 Poyntz Avenue, Manhattan, Kansas 66505, Attention: Mr.
Patrick L. Alexander, President, no later than December 21, 2001, and must
otherwise comply with the notice and other provisions of our bylaws.
GENERAL
Your proxy is solicited by the board of directors and we will bear the
cost of solicitation of proxies. In addition to the solicitation of proxies by
use of the mails, officers, directors and regular employees of MNB Bancshares or
Security National Bank, acting on our behalf, may solicit proxies by telephone,
telegraph or personal interview. We will, at our expense, upon the receipt of a
request from brokers and other custodians, nominees and fiduciaries, forward
proxy soliciting material to the beneficial owners of shares held of record by
individuals.
OTHER BUSINESS
It is not anticipated that any action will be asked of the stockholders
other than that set forth above, but if other matters properly are brought
before the meeting, the persons named in the proxy will vote in accordance with
their best judgment.
FAILURE TO INDICATE CHOICE
If any stockholder fails to indicate a choice in items (1) and (2) on
the proxy card, the shares of such stockholder shall be voted (FOR) in each
instance.
REPORT ON FORM 10-K
WE WILL FURNISH WITHOUT CHARGE TO EACH PERSON REPRESENTING THAT HE OR SHE WAS A
BENEFICIAL OWNER OF OUR COMMON STOCK AS OF THE RECORD DATE FOR THE MEETING,
UPON WRITTEN REQUEST, A COPY OF OUR ANNUAL REPORT ON FORM 10-K. SUCH WRITTEN
REQUEST SHOULD BE SENT TO MR. PATRICK L. ALEXANDER, MNB BANCSHARES, INC., P.O.
BOX 308, MANHATTAN, KANSAS 66502. OUR FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION ARE ALSO AVAILABLE VIA THE INTERNET AT "WWW.SEC.GOV".
By order of the Board of Directors
Patrick L. Alexander
President and Chief
Executive Officer
Manhattan, Kansas
April 20, 2001
ALL STOCKHOLDERS ARE URGED TO SIGN
AND MAIL THEIR PROXIES PROMPTLY
EXHIBIT A
Charter of the Audit Committee of the Board of Directors
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
o Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
o Monitor the independence and performance of the Company's independent
auditors and internal auditing department.
o Provide an avenue of communication among the independent auditors,
management, the internal auditing department, and the Board of
Directors.
The Audit Committee has the authority to conduct any investigation appropriate
to fulfilling its responsibilities, and it has direct access to the independent
auditors as well as anyone in the organization. The Audit Committee has the
ability to retain, at the Company's expense, special legal, accounting, or other
consultants or experts it deems necessary in the performance of its duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the National associ-
ation of Securities Dealers (NASD). The Audit Committee shall be comprised
of three or more directors as determined by the Board, each of whom shall
be independent nonexecutive directors, free from any relationship that
would interfere with the exercise of his or her independent judgment. All
members of the Committee shall have a basic understanding of finance and
accounting and be able to read and understand fundamental financial
statements, and at least one member of the Committee shall have accounting
or related financial management expertise.
Audit Committee members shall be appointed by the Board on recommendation
of the Board. If an audit committee Chair is not designated or present, the
members of the Committee may designate a Chair by majority vote of the
Committee membership. The Committee shall meet at least four times
annually, or more frequently as circumstances dictate. The Audit Committee
Chair shall prepare and/or approve an agenda in advance of each meeting.
The Committee should meet privately in executive session at each Committee
meeting and at least annually with management, the director of the internal
auditing department, the independent auditors, and as a committee to
discuss any matters that the Committee or each of these groups believe
should be discussed. The Committee may ask members of management or others
to attend meetings and provide pertinent information as necessary. In
addition, the Committee, or at least its Chair, should communicate with
management and the independent auditors quarterly to review the Company's
financial statements and significant findings based upon the auditors
limited review procedures.
III. Audit Committee Responsibilities and Duties
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually.
Submit the charter to the Board of Directors for approval and have
the document published at least every three years in accordance with
SEC regulations.
2. Review the Company's annual audited financial statements prior to
filing or distribution. Review should include discussion with
management and independent auditors of significant issues regarding
accounting principles, practices, and judgments.
3. In consultation with the management, the independent auditors, and
the internal auditors, consider the integrity of the Company's
financial reporting processes and controls. Discuss significant
financial risk exposures and the steps
management has taken to monitor, control, and report such
exposures. Review significant findings prepared by the independent
auditors and the internal auditing department together with
management's responses.
4. Consider reviewing with financial management and the independent
auditors the company's quarterly financial results prior to the
release of earnings and/or the company's quarterly financial
statements prior to filing or distribution. Discuss any
significant changes to the Company's accounting principles and
any items required to be communicated by the independent auditors
in accordance with SAS 61 (see item 9). The Chair of the
Committee may represent the entire Audit Committee for purposes of
this review.
Independent Auditors
5. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall
review the independence and performance of the auditors and
annually recommend to the Board of Directors the appointment of
the independent auditors or approve any discharge of auditors when
circumstances warrant.
6. Approve the fees and other significant compensation to be paid to
the independent auditors.
7. On an annual basis, the Committee should review and discuss with
the independent auditors all significant relationships they have
with the Company that could impair the auditors' independence.
8. Review the independent auditors audit plan and engagement letter -
discuss scope, staffing, locations, reliance upon management, and
internal audit and general audit approach.
9. Prior to releasing the year-end earnings, discuss the results of
the audit with the independent auditors. Discuss certain matters
required to be communicated to audit committees in accordance with
AICPA SAS 61.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied
in its financial reporting.
Internal Audit Department and Legal Compliance
11. Review the budget, plan, changes in plan, activities, organiza-
tional structure, and qualifications of the internal audit
department, as needed. The internal audit department shall be
responsible to senior management, but have a direct reporting
responsibility to the Board of Directors through the Committee.
Changes in the senior internal auditor shall be subject to
committee approval.
12. Review the appointment, performance, and replacement of the senior
internal auditor.
13. Review significant reports prepared by the internal audit
department together with management's response and follow-up to
these reports.
14. On at least an annual basis, review with the Company's counsel,
any legal matters that could have a significant impact on the
organization's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from
regulators or governmental agencies. Review all reports concerning
any significant fraud or regulatory noncompliance that occurs at
the Company. This review should include consideration of the
internal controls that should be strengthened to reduce the risk
of a similar event in the future.
Other Audit Committee Responsibilities
15. Annually prepare a report to shareholders as required by the
Securities and Exchange Commission. The report should be included
in the Company's annual proxy statement.
16. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the
Board deems necessary or appropriate.
17. Maintain minutes of meetings and periodically report to the Board
of Directors on significant results of the foregoing activities.
PROXY FOR COMMON SHARES ON BEHALF OF BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF THE STOCKHOLDERS OF
MNB BANCSHARES, INC. TO BE HELD MAY 23, 2001
The undersigned hereby appoints Patrick L. Alexander and Brent A. Bowman,
or either of them acting in the absence of the other, with power of substitu-
tion, attorneys and proxies, for and in the name and place of the undersigned,
to vote the number of shares of common stock that the undersigned would be
entitled to vote if then personally present at the annual meeting of the
stockholders of MNB Bancshares, Inc., to be held at the Kansas State University
Student Union, 17th and Anderson Avenue, Manhattan, Kansas 66506, on Wednesday,
May 23, 2001, at 2:00 p.m., local time, or any adjournments or postponements of
the meeting, upon the matters set forth in the notice of annual meeting and
proxy statement, receipt of which is hereby acknowledged, as follows:
1. ELECTION OF DIRECTORS:
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees listed
below) below
Class III (term expires 2004): Brent A. Bowman, Charles D. Green and
Vernon C. Larson
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.)
2. APPROVE THE APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE YEAR ENDING DECEMBER 31, 2001:
For Against Abstain
3. In accordance with their discretion, upon all other matters that may
properly come before the meeting and any adjournments or postponements
of the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE NOMINEES LISTED UNDER PROPOSAL 1 AND FOR PROPOSAL 2.
Dated ____________________________ , 2001
Signature(s) ____________________________
____________________________
NOTE: PLEASE DATE PROXY AND SIGN IT EXACTLY AS NAME OR NAMES APPEAR ABOVE.
ALL JOINT OWNERS OF SHARES SHOULD SIGN. STATE FULL TITLE WHEN SIGNING AS
EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN, ETC. PLEASE RETURN SIGNED PROXY
IN THE ENCLOSED ENVELOPE.